Sandy is planning to start a new business venture and must decide whether to operate as a sole proprietorship or C corporation. She projects that the business will generate annual cash flow and taxable income of $100,000. Sandys personal marginal tax rate is 37 percent based on compensation income she receives from other sources of $275,000. (Ignore any employment tax consequences, in other words do not include in your answer any calculations regarding payroll taxes.)

(a) If Sandy operates the business as a sole proprietorship, calculate the annual after-tax cash flow available for reinvestment in the business venture. Assume the sole proprietorship will qualify for the 20 percent Section 199A deduction.

(b) If Sandy operates the business as a regular C corporation that makes no dividend distributions, calculate the annual after-tax cash flow available for reinvestment in the business.

(c) Suppose Sandy wishes to withdraw $20,000 per year from the business and will reinvest any remaining after-tax earnings. 1. What are the tax consequences to Sandy and the business of such a withdrawal if the business is operated as a sole proprietorship? 2. How much after-tax cash flow will remain for reinvestment in the business? 3. How much after-tax cash flow will Sandy have from the withdrawal?

(d) What are the tax consequences to Sandy and the business of a $20,000 withdrawal in the form of a dividend if the business is operated as a C corporation? 1. How much after-tax cash flow will remain for reinvestment in the business? 2. How much after-tax cash flow will Sandy retain from the dividend?

(e) If Sandy wants to operate the business as a corporation but also wants to receive cash flow from the business each year, what would you recommend to obtain a better tax result?