Required Information [The following information applies to the questions displayed below.] 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 15 percent annual before-tax return on a $740,000 investment. Andrea's marginal income tax rate is 35 percent and her tax rate on dividends and capital gains is 15 percent. Andrea will also pay a 3.8 percent net investment income tax on dividends and capital gains she recognizes. If Andrea organizes SHO as an LLC, Andrea 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. 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. (Round your Intermediate computations to the nearest whole dollar amount.) 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? Answer is complete but not entirely correct. After-tax cash flow LLC C corporation S s 68,242 71,205

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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[The following information applies to the questions displayed below.]
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 15 percent annual before-tax return on a $740,000 investment. Andrea's marginal
income tax rate is 35 percent and her tax rate on dividends and capital gains is 15 percent. Andrea will also pay a 3.8
percent net investment income tax on dividends and capital gains she recognizes. If Andrea organizes SHO as an LLC.
Andrea 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. 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. (Round your
Intermediate computations to the nearest whole dollar amount.)
>. 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? (Round your final
answers to 2 decimal places.)
Overall Tax Rate
LLC
C corporation
38.52 %
20.52 %
Transcribed Image Text:[The following information applies to the questions displayed below.] 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 15 percent annual before-tax return on a $740,000 investment. Andrea's marginal income tax rate is 35 percent and her tax rate on dividends and capital gains is 15 percent. Andrea will also pay a 3.8 percent net investment income tax on dividends and capital gains she recognizes. If Andrea organizes SHO as an LLC. Andrea 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. 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. (Round your Intermediate computations to the nearest whole dollar amount.) >. 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? (Round your final answers to 2 decimal places.) Overall Tax Rate LLC C corporation 38.52 % 20.52 %
Required Information
[The following information applies to the questions displayed below.]
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 15 percent annual before-tax return on a $740,000 investment. Andrea's marginal
income tax rate is 35 percent and her tax rate on dividends and capital gains is 15 percent. Andrea will also pay a 3.8
percent net investment income tax on dividends and capital gains she recognizes. If Andrea organizes SHO as an LLC.
Andrea 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. 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. (Round your
Intermediate computations to the nearest whole dollar amount.)
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?
Answer is complete but not entirely correct.
After-tax cash
flow
LLC
C
corporation
s
s
68,242 X
71,205
Transcribed Image Text:Required Information [The following information applies to the questions displayed below.] 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 15 percent annual before-tax return on a $740,000 investment. Andrea's marginal income tax rate is 35 percent and her tax rate on dividends and capital gains is 15 percent. Andrea will also pay a 3.8 percent net investment income tax on dividends and capital gains she recognizes. If Andrea organizes SHO as an LLC. Andrea 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. 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. (Round your Intermediate computations to the nearest whole dollar amount.) 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? Answer is complete but not entirely correct. After-tax cash flow LLC C corporation s s 68,242 X 71,205
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