Question

Required information [The following information applies to the questions displayed below.] Amanda would like to organize BAL as either an LLC (taxed as a sole proprietorship) or a C corporation. In either form, the entity is expected to generate an 8 percent annual before-tax return on a $500,000 investment. Amanda's marginal income tax rate is 37 percent and her tax rate on dividends and capital gains is 23.8 percent (including the 3.8 percent net investment income tax). If Amanda organizes BAL as an LLC, she will be required to pay an additional 2.9 percent for self- employment tax and an additional 0.9 percent for the additional Medicare tax. Also, she is eligible to claim a full deduction for qualified business income on BAL's income. Assume that BAL will distribute half of its after-tax earnings every year as a dividend if it is formed as a C corporation. (Do not round intermediate calculations and round your final answers to the nearest whole dollar.) a. How much cash after taxes would Amanda receive from her investment in the first year if BAL is organized as either an LLC or a C corporation? Answer is complete but not entirely correct. LLC After-tax cash flow 26,954 % 12,040 corporation

Answer 1

LLC = $26955

		LLC
1.	Pretax earnings	40000
2.	Entity level tax rate	0%
3.	Entity level tax	0
4.	Earnings after-entity-level tax	40000
5.	QBI deduction	(8000)
6.	Deduction for 50 percent of SE tax	(536)
7.	Net income taxable to owner	31464
8.	Income tax paid by owner	11642
9.	Self-employment tax	1071
10.	Additional Medicare tax/Net investment income tax	332
11.	Owner-level tax	13045
	After-tax cash flow	26955