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

Exercise 66

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?