QUESTION 1

Jeff and Ed form The Tax Museum as a corporation. They each own 50% of the stock. Neither is employed by the corporation. In the first year of operation, the corporation generates $1 million of taxable income and pays $200,000 in dividends ($100,000 each to Jeff and Ed). Assuming a 21% corporate tax rate, a 35% personal tax rate on ordinary income, and a 15% personal tax rate on dividends, how much tax will be paid in the first year?

a. $210,000 tax for the corporation, $15,000 personal tax for each of Jeff and Ed

b. $360,000 tax for the corporation, $0 personal tax for Jeff and Ed

c. $189,000 tax for the corporation, $15,000 personal tax for each of Jeff and Ed

d. $0 tax for the corporation, $175,000 personal tax for each of Jeff and Ed

QUESTION 2

Jeff and Ed form The Tax Museum as an LLC, which will be taxed as a partnership. They each own 50% of the LLC. Neither is employed by the LLC. In the first year of operation, the LLC generates $1 million of taxable income, all of which is ordinary, and pays $200,000 in distributions to the owners ($100,000 each to Jeff and Ed). Assuming a 21% corporate tax rate, a 35% personal tax rate on ordinary income, and a 15% personal tax rate on dividends, how much tax will be paid in the first year?

a. $0 tax for the LLC, $175,000 personal tax for each of Jeff and Ed

b. $210,000 tax for the LLC, $15,000 personal tax for each of Jeff and Ed

c. $210,000 tax for the LLC, $175,000 personal tax for each of Jeff and Ed

d. $0 tax for the LLC, $15,000 personal tax for each of Jeff and Ed

e. None of the abovee. None of the above