Becca Would Like to Organize BMI as Either an LLC

question 35

Essay

Becca would like to organize BMI as either an LLC or as a corporation (taxed as a C corporation)generating a 4 percent annual before-tax rate of return on a $450,000 investment.Individual ordinary rates are 28 percent,corporate rates are 15 percent,and individual capital gains and dividends tax rates are 15 percent.BMI will distribute its earnings annually to either its members or shareholders.
a.Ignoring self-employment taxes,how much would Becca keep after taxes if BMI is organized as either a LLC or as a corporation (taxed as a C corporation)?
b.Ignoring self-employment taxes,what are the overall (combined owner and entity level)tax rates if BMI is organized as either an LLC or as a corporation (taxed as a C corporation)?

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Definitions:

Conversion Costs

The combined costs of direct labor and manufacturing overheads incurred to convert raw materials into finished goods.

Weighted-Average Method

An inventory costing method that calculates the cost of goods sold and ending inventory based on the average cost of all inventory items, weighted by the quantity of each item.

Painting Department

A specific section within a manufacturing facility where products or parts are painted, typically distinguished for costing and operational purposes.

Conversion Costs

The sum of direct labor and manufacturing overhead costs, which are incurred to convert raw materials into finished goods.