David Would Like to Organize HOS (A Business Entity)as Either

question 82

Essay

David would like to organize HOS (a business entity)as either an S corporation or as a corporation (taxed as a C corporation)generating a 12 percent annual before-tax return on a $312,000 investment. David's marginal tax rate is 24 percent and the corporate tax rate is 21 percent. David's marginal tax rate on individual capital gains and dividends is 15 percent. HOS will pay out its after-tax earnings every year to either its members or its shareholders. If HOS is taxed as an S corporation, David's business income allocation would be subject to a 3.8 percent net investment income tax (he is a passive investor in the business), and the business income allocation would qualify for the deduction for qualified business income. (Round your intermediate calculations and final answer to whole number dollar amount.)a. How much would David keep after taxes if HOS is organized as either an S corporation or a C corporation?b. What are the overall tax rates (combined owner and entity level)if HOS is organized as either an S corporation or a C corporation?

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Definitions:

Accounts Receivable

Refers to the money owed to a company by its customers for goods or services that have been delivered but not yet paid for.

Dividends

Payments made by a corporation to its shareholders from the earnings of the company.

Normal Credit Balance

Refers to the expected balance type (credit) for certain accounts in accounting, such as revenues, liabilities, and equity accounts.

Liabilities

Financial obligations or debts that a company is required to pay in the future.