Jaron Would Like to Organize TMZ as Either an LLC

question 26

Essay

Jaron would like to organize TMZ as either an LLC or 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 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 C corporation?

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Definitions:

Dialectical Behavior Therapy

A type of cognitive-behavioral therapy developed to help people cope with stress, regulate emotions, and improve relationships with self and others, especially effective for those with borderline personality disorder.

Cognitive-behavioral Therapy

A form of psychotherapeutic treatment that aims to change patterns of thinking or behavior that are behind people's difficulties, thereby changing the way they feel.

Meta-analysis

A statistical technique that combines the results of multiple scientific studies to arrive at a comprehensive conclusion.

Dialectical Behavior Therapy

A type of cognitive-behavioral therapy that emphasizes the psychosocial aspects of treatment, focusing on the synthesis or integration of opposites.