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

question 59

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 $300,000 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.
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:

Self-Protective Mechanisms

Psychological strategies employed by individuals to defend themselves against threats to their self-esteem or well-being.

Basic Anxiety

A term introduced by psychoanalyst Karen Horney, referring to feelings of helplessness and insecurity that arise from living in a potentially hostile world, which can significantly affect one's relationships and self-image.

Drive for Perfection

A motivating force that compels individuals to strive for flawlessness and set excessively high performance standards.

Personality Type

Distinct patterns of thought, feeling, and behavior that characterize an individual’s adjustments to the world; often categorized into specific types or categories.