Response to the following questions:
1. Andrea would like to organize SHO as either an LLC (taxed as a sole proprietorship) or a C corporation. In either form, the entity is expected to generate an 9 percent annual before-tax return on a $560,000 investment. Andrea's marginal income tax rate is 35 percent and her tax rate on dividends and capital gains is 15 percent. Andrea will also pay a 3.8 percent net investment income tax on dividends and capital gains she recognizes. If Andrea organizes SHO as an LLC, Andrea will be required to pay an additional 2.9 percent for self-employment tax and an additional 0.9 percent for the additional Medicare tax. Further, she is eligible to claim the full deduction for qualified business income. Assume that SHO will pay out all 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.)
A. What is the overall tax rate on SHO's income in the first year if SHO is organized as an LLC or as a C corporation? (Round your final answers to 2 decimal places.)
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Company Names
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Overall Tax Rate
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LLC
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C corporation
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2. In its first year of existence (year 1), Willow Corp. (a C corporation) reports a loss for tax purposes of $50,000. In year 2 it reports a $40,000 loss. For year 3, it reports taxable income from operations of $100,000 before any loss carryovers. How much tax will Willow Corp. pay in year 3, what is its NOL carryover to year 4, and when will the NOL expire under the following assumptions? (New Corporate income tax rate has been mentioned as "21% on all taxable income" as per the recent change. Leave no answer blank. Enter zero if applicable.)
A. Year 1 is 2017.
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Willow Corp. tax liability in Year 3
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%
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Willow Corp. NOL carryover to Year 4
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%
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3. 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.)
A. What is the overall tax rate on UTA's income if UTA's income is not qualified business income and Tremaine is a passive investor in UTA? (Round your final answers to 1 decimal place.)