Sandra would like to organize LAB (a legal corporation) as either an S corporation or a C corporation for tax purposes. In either form, the entity is expected to generate an 8 percent annual before-tax return on a $500,000 investment. Sandra marginal income tax rate is 37 percent and her tax rate on qualified dividends and net capital gains is 20
Sandra would like to organize LAB (a legal corporation) as either an S
corporation or a C corporation for tax purposes. In either form, the entity is
expected to generate an 8 percent annual before-tax return on a $500,000
investment. Sandra marginal income tax rate is 37 percent and her tax rate
on qualified dividends and net
qualified business income (QBI), so Sandra is not allowed to claim the QBI
deduction. Assume that LAB will distribute all of its earnings after entity-level
taxes every year. Ignore the additional Medicare tax and the net investment
income tax when computing your answers.
b. What is the overall tax rate on LAB income in the first year if LAB is
organized as an S corporation or as a C corporation?
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