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 percent. LAB income is not 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. a. How much cash after taxes would Sandra receive from her investment in the first year if LAB is organized as either an S corporation or a C corporation?
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.
a. How much cash after taxes would Sandra receive from her investment in
the first year if LAB is organized as either an S corporation or a C
corporation?
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