Required information
Problem 04-50 (LO 04-3) (Static)
[The following information applies to the questions displayed below.]
Amanda would like to organize BAL as either an LLC (taxed as a sole proprietorship) or a C corporation. In either form, the
entity is expected to generate an 8 percent annual before-tax return on a $500,000 investment. Amanda's marginal
income tax rate is 37 percent, and her tax rate on qualified dividends and net capital gains is 20%. Assume that BAL will
distribute half of its after-tax earnings every year as a dividend if it is formed as a C corporation. Assume the income is not
eligible for the QBI deduction. Further, when computing your answers, include the self-employment tax (use a 2.9%
marginal rate for self-employment income because Amanda has salary in excess of the wage base limit) but not the
additional Medicare tax or the net investment income tax.
Problem 04-50 Part a (Static)
a. How much cash after taxes would Amanda receive from her investment in the first year if BAL is organized as an LLC? What if BAL is
organized as a C corporation?
Note: Round intermediate calculations and your final answers to the nearest whole dollar.
After-tax cash
flow
LLC
$
24,470
C
$
corporation
12,640