David Would Like to Organize HOS as Either an LLC

question 55

Essay

David would like to organize HOS as either an LLC or as a corporation (taxed as a C corporation)generating a 12 percent annual before-tax return on a $300,000 investment.Individual and corporate tax rates are both 30 percent and individual capital gains and dividend tax rates are 15 percent.HOS will pay out its after-tax earnings every year to either its members or its shareholders.
a.Ignoring self-employment taxes,how much would David keep after taxes if HOS is organized as either an LLC or a corporation (taxed as a C corporation)?
b.Ignoring self-employment taxes,what are the overall tax rates (combined owner and entity level)if HOS is organized as either an LLC or a corporation (taxed as a C corporation)?

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Definitions:

Residual Value

The estimated amount that an asset will be worth at the end of its useful life, after it has been fully depreciated.

Straight-Line Depreciation

A method of allocating the cost of a tangible asset over its useful life evenly.

Depreciation Expense

Assigning the cost of a solid asset across its useful lifespan.

Journal Entry

A record of financial transactions in the accounting books, showing accounts affected, amounts, and date.