Taylor Would Like to Organize DRK as Either an LLC

question 59

Essay

Taylor would like to organize DRK as either an LLC or as a C corporation generating a 13 percent annual before-tax rate of return on a $250,000 investment. Individual and corporate tax rates are both 30 percent and individual capital gains and dividends tax rates are 5 percent. DRK will distribute its earnings annually to either its members or shareholders.
a. Ignoring self-employment taxes, how much would Taylor keep after taxes if DRK is organized as either an LLC or as a C corporation?
b. Ignoring self-employment taxes, what are the overall (combined owner and entity level) tax rates if DRK is organized as either an LLC or as a C corporation?

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Definitions:

General Equilibrium Analysis

An economic theory that considers all markets and factors simultaneously to understand how they interact and reach a state of balance.

Secondary Changes

Consequential modifications or adjustments that occur as a result of primary actions or policies.

Federal Gasoline Tax

A tax imposed by the federal government on the sale of gasoline, used primarily to fund transportation projects.

General Equilibrium

A state in which all markets in an economy are in simultaneous equilibrium, with supply equaling demand in each market.