Question

Problem 15-55 (LO 15-3) (Static) [The following information applies to the questions displayed below.] Mackenzie is considering conducting her business, Mac561, as either a single-member LLC or an S corporation. Assume her marginal ordinary income tax rate is 37 percent, her marginal FICA rate on employee compensation is 1.45 percent, her marginal self-employment tax rate is 2.9 percent, and any employee compensation or self-employment income she receives is subject to the 0.9 percent additional Medicare tax. Also assume Mac561 generated $200,000 of business income before considering the deduction for compensation Mac561 pays to Mackenzie and Mackenzie can claim the qualified business income deduction on Mac561’s business income. Determine Mackenzie’s after-tax cash flow from the entity’s business income and any compensation she receives from the business under the following assumptions: (Round intermediate calculations and your final answers to the nearest whole dollar.)

Problem 15-55 Part a (Static)

a. Mackenzie conducted Mac561 as a single-member LLC.

After-tax cash flow______

Answer 1

After-tax cash flow $134772

Business Income before considering deduction	$200,000
QBI Deduction (200000*20%)	(40000)
Deduction for 50% of SE Tax (200000*92.35%*2.9%*50%	(2678)
Net Income Taxable Business Income	$157,322
Income tax paid by owner (157322*37%)	58209
Self-employment tax (200000*92.35%*2.9%)	5356
Additional Medicare tax (200000*92.35%*0.9%)	1662
Total tax	65228
After tax cash flow (200000-65228)	$134,772