Tremaine would like to organize UTA as either an S Corporation or a C corporation. In either form, the entity will generate a 9 percent annual before-tax return on a $1,000,000 investment. Tremaine's marginal income tax rate is 37 percent, and his tax rate on dividends and capital gains is 23.8 percent (including the net investment income tax). If Tremaine organizes UTA as an S corporation, he will be allowed to claim the deduction for qualified business income. Also, because Tremaine will participate in UTA's business activities, the income from UTA will not be subject to the net investment income tax. Assume that UTA will pay out 25 percent of its after-tax earnings every year as a dividend if it is formed as a C corporation. b. What is the overall tax rate on UTA's income in the first year if UTA is organized as an S corporation or as a C corporation?
Partnership Accounting
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings, admission of a new partner, etc.
Partner Admission and Withdrawal
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings of a partner, etc.
![Tremaine would like to organize UTA as either an S Corporation or a C corporation. In either
form, the entity will generate a 9 percent annual before-tax return on a $1,000,000
investment. Tremaine's marginal income tax rate is 37 percent, and his tax rate on dividends
and capital gains is 23.8 percent (including the net investment income tax). If Tremaine
organizes UTA as an S corporation, he will be allowed to claim the deduction for qualified
business income. Also, because Tremaine will participate in UTA's business activities, the
income from UTA will not be subject to the net investment income tax. Assume that UTA will
pay out 25 percent of its after-tax earnings every year as a dividend if it is formed as a C
corporation.
b. What is the overall tax rate on UTA's income in the first year if UTA is organized as an S
corporation or as a C corporation?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fbe4edced-7369-45d2-bcc4-af9b891d4871%2F59f52e83-d2e4-4148-8956-428b62233f1c%2Fxrjrcgo_processed.png&w=3840&q=75)
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