Jaron Would Like to Organize TMZ as Either an LLC

question 32

Essay

Jaron would like to organize TMZ as either an LLC or as a corporation (taxed as a C corporation)generating a 6 percent annual before-tax rate of return on a $200,000 investment.Individual and corporate tax rates are both 40 percent and individual capital gains and dividends tax rates are 10 percent.TMZ will distribute its earnings annually to either its members or shareholders.
a.Ignoring self-employment taxes (and the additional Medicare Tax),how much would Jaron keep after taxes if TMZ is organized as either an LLC or a corporation (taxed as a C corporation)?
b.Ignoring self-employment taxes (and the additional Medicare Tax),what are the overall tax rates (combined overall and entity level)if TMZ is organized as either an LLC or as a corporation (taxed as a C corporation)?

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Definitions:

Lower-Order Needs

Basic human requirements such as physiological and safety needs that must be satisfied before higher-order needs can be addressed.

Higher-Order Needs

Esteem and self-actualization needs in Maslow’s hierarchy.

Psychological Development

The ongoing growth and change in cognitive, emotional, and social capabilities and processes throughout a person's life.

Deficit Principle

A theory suggesting that a decrease in stimulation or input will cause humans to seek out more stimulation, to overcome the perceived deficit.