2 0 Required information The following information applies to the questions disp

Question

2 0 Required information The following information applies to the questions displayed below points Tremaine would like to organize UTA as either an S Corporation or a C corporation. In either form, the entity will generate a 9 percent annual before-tax return on a $1,000,000 investment. Tremaine's marginal income tax rate is 37 percent and his tax rate on dividends and capital gains is 23.8 percent (including the net investment income tax). If Tremaine organizes UTA as an S corporation he will be allowed to claim the deduction for qualified business income. Also, because Tremaine will participate in UTA's business activities, the income from UTA will not be subject to the net investment income tax. Assume that UTA will pay out 100 percent of its after-tax earnings every year as a dividend if it is formed as a C corporation. (Round your intermediate computations to the nearest whole dollar amount.) 04:34:54 eBook Hint a. How much cash after taxes would Tremaine receive from his investment in the first year if UTA is organized as either an S corporation or a C corporation? Print After-tax cash S corporation C corporation References This is a numeric cell, so please enter numbers only.

Explanation / Answer

If UTA is form as S corporation Return for Tremaine - 9%*1000000 90000 Less : Deduction for qualified business income @ 20% 18000 Adjusted Return 72000 Tax @ 37% 26640 Cash after taxes for S corporation 45360 If UTA is form as C corporation Return for Tremaine - 9%*1000000 90000 Less : Tax @ 37% 33300 After tax entity earnings 56700 Owner tax @ 20% 11340 (23.80%-3.80%) Cash after taxes for C corporation 45360 S Corporation $45,360 C corporation $45,360

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