Jerry Would Like to Organize FBC as Either an LLC

question 20

Essay

Jerry would like to organize FBC as either an LLC or as a C corporation generating an 8 percent annual before-tax rate of return on a $400,000 investment. Individual and corporate tax rates are both 35 percent and individual capital gains and dividends tax rates are 15 percent. FBC will pay out its after-tax earnings every year to either its members or its shareholders.
a. How much would Jerry keep after taxes if FBC is organized as either an LLC or as a C corporation? (ignore self-employment taxes)
b. Ignoring self-employment taxes, what are the overall tax rates (combined owner and entity level) tax rates if FBC is organized as either an LLC or as a C corporation?

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Definitions:

Id Impulses

In psychoanalytic theory, instinctual and primitive drives or desires inherent in the id, seeking immediate gratification regardless of societal norms.

Anxiety-Provoking Film

A visual media designed specifically to induce feelings of anxiety or discomfort in its viewers.

Humor

A cognitive process that elicits laughter and provides amusement, often seen as a healthy mechanism for coping with stress and enhancing social bonds.

Defense Mechanism

A psychological strategy unconsciously used to protect oneself from anxiety arising from unacceptable thoughts or feelings.