McGraw-Hill's Taxation of Business Entities 3rd Edition by Connie Weaver, Brian Spilker, Edmund Outslay, John Robinson, Ronald Worsham, Benjamin Ayers, John Barrick

Exercise 37

Jack would like to organize PPS as either an LLC or as a C corporation generating an 11 percent annual before-tax return on a $100,000 investment. Assume individual ordinary rates are 35 percent, corporate rates are 15 percent, and individual capital gains and dividends tax rates are 20 percent. PPS will pay out its after-tax earnings every year as a dividend if is formed as a C corporation. Assume Jack is the sole owner of the entity and ignore self-employment taxes.
a. How much would Jack keep after taxes if PPS is organized as either a C corporation or an LLC
b. What are the overall tax rates if PPS is organized as either an LLC or a C corporation