Question: 1. What are the tax advantages and disadvantages of converting a C corporation into an LLC?
2. Evon would like to organize SHO as either an LLC or as a C corporation generating an 11 percent annual before-tax return on a $200,000 investment. Assume individual and corporate tax rates are both 35 percent and individual capital gains and dividend tax rates are 15 percent. SHO will pay out its after-tax earnings every year as a dividend if it is formed as a C corporation. Assume Evon is the sole owner of the entity. Ignore self-employment taxes, the additional Medicare tax, and the net investment income tax.
a. How much would Evon keep after taxes if SHO is organized as an LLC?
b. How much would Evon keep after taxes if SHO is organized as a C corporation?