Problem $2$: Tax Dilemma

You want to start your own business and you have to decide on the legal form of

the entity; a sole proprietorship or a corporation. You expect a pre$-$tax income of

$$200,000$ from the business and all after$-$tax income will be distributed as dividends

if you choose to form a corporation. You are a single filer $($tax schedule provided in

Problem $1),$ the corporate tax rate is $21\%$ and dividends are subject to a $20\%$ tax rate

at the shareholder level.

What would be the average tax rate and your after$-$tax income, if you form a sole

proprietorship?

What would be the effective tax rate and your after$-$tax income if you form a

corporation?

Just from a tax perspective, which legal form provides a tax advantage?

What will happen to the tax advantage you documented in Question $3,$ if you

expect higher pre$-$tax income $($e$.$g$.,$ $$1,000,000)?$