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Sandra 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 9 percent annual before-tax return on a $530,000 investment. Sandras 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 Sandra organizes BAL as an LLC, she will be required to pay an additional 2.9 percent for self employment tax and an additional O.9 percent for the additional Medicare tax. BALs income is not qualified business income (QBI) so Sandra is not allowed to claim the QBI deduction. Assume that BAL will distribute all of its after-tax earnings every year as a dividend if it is formed as a Ccorporation. (Round your intermediate computations to the nearest whole dollar amount.)a. How much cash after taxes would Sandra receive from her investment in the first year if BAL is organized as either an LLC or a C corporation? After-tax cash flow LLC C corporationb. What is the overall tax rate on BALs income in the first year if BAL is organized as an LLC or as a C corporation? (Round your final answers to 2 decimal places.) Overall Tax Rate LLC C corporation

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Answer #1

LA Business : 0,000 13 97Soox0.37 = 36,075 erpoymen 97,Soox O.099 2897 . S877-3 36075+ 287-5 81-3 Tdal Tove 39,780 ente 5112D 0%10 ed at 21% F 20,47S 97 Soo-2047S 7702S el On77,023 x0-238 1833).95 Ou V = 2a47S+1233195 : 38806.9S a Covp 97,5oo 38,8o6.9S - S8,693. os otal oue X100 3978oTolal oes 10to oveal on Vatt ola tove *i 100 32,206.9 39.802 %

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