How much cash after taxes would andrea receive

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Question

Andrea would like to organize SHO as either an LLC (taxed as a sole proprietorship) or a C corporation. In either form, the entity is expected to generate an 11% annual before-tax return on a $200,000 investment. Andrea's marginal income tax rate is 35% and her tax rate on dividends and capital gains is 15%.

Andrea will also pay a 3.8% net investment income tax on dividends and capital gains she recognizes. If Andrea organized SHO as an LLC, Andrea will be required to pay an additional 2.9% for self-employment tax and an additional 0.9% for the additional Medicare tax. Further, she is eligible to claim the full deduction for qualified business income. Assume that SHO will pay out all of its after-tax earnings every year as a dividend if it is formed as a C corporation.

a. How much cash after taxes would Andrea receive from her investment in the first year if SHO is organized as either an LLC or a C corporation?

b. What is the overall tax rate on SHO's income in the first year if SHO is organized as an LLC or as a C corporation?

Reference no: EM132379491

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