Owner Effects Ray and Terry own and operate Jeffords Worldwide. They both actively participate in the business and it is their primary source of income. During the year Jeffords reports the following activity:

Sales Revenues 100,000

Payments to Ray for Services rendered (60,000)

Payments to Terry for Services rendered (50,000)

Compensation for Non-Owners (20,000)

Advertising Expense (5,000)

Interest from Savings Account 5,000

Short term Capital Loss (10,000)

Cash Distribution to Ray (100,000)

Cash Distribution to Terry (50,000)

Rays basis in the entity at the beginning of the year is $300,000 and Terrys is $200,000. Assume they both have a 35% marginal tax rate, have owned their interest in the entity for 5 years, and have sufficient at-risk basis to deduct any allowed losses.

What is the total amount of taxes Ray will pay as a result of his ownership if Jeffords Worldwide is organized as an LLC? You can assume all items are allocated based on relative ownership percentages.

What is the total amount of taxes Terry will pay as a result of her ownership if Jeffords Worldwide is organized as an S-corp?