Loretta Plans to Start a Small Business, Operated Through a Corporation

question 23

Multiple Choice

Loretta plans to start a small business, operated through a corporation. In year 0, she expects the corporation to generate a loss of $100,000. Subsequently, she expects the corporation to be profitable, and projects profit of $150,000 in year 1, and $250,000 in year 2. Loretta's personal marginal tax rate on ordinary income is 35%. Using a 10% discount rate, calculate the present value of expected tax savings and costs on the business earnings for the first 3 years of operations if the business makes an S corporation election.

• A)$105,000 total tax cost
• B)$93,748 total tax cost
• C)$96,933
• D)$0

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Definitions:

American Citizens

Individuals who hold citizenship in the United States, either by birth or through naturalization, granting them certain rights and responsibilities.

Health Care Costs

The expenses associated with medical services and products, including treatment, medications, hospital stays, and health insurance.

Managed Care

A health care delivery system aimed at managing cost, quality, and utilization of services, often involving pre-arranged networks of providers and significant oversight of care.

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The state of being content or pleased with an outcome, service, or situation.