Oscar would like to organize Bam Bam Solutions as either an

Oscar would like to organize Bam Bam Solutions as either an LLC or a C Corporation. He expects Bam Bam to generate $650,000 in before tax income in its first year. Oscar is single and has no other income. If he organizes Bam Bam as a C Corporation, all of the after tax earnings will be distributed to him through a dividend. (Make sure to use the new tax law in your calculations and Oscar does not qualify for the Qualified Business Income Deduction)

Ignoring self-employment taxes, what is the overall tax rate if he organizes Bam Bam as a C Corporation? What is the overall tax rate if he organizes Bam Bam as an LLC?

How would your answer change if he decides to draw a $100,000 salary?

Solution

For corporations the maximum tax rate is 21.

And Oscar doesn\'t qualify for qualified business income deduction therefore the tax rate is 21 for both the situations when whole income is distributed as dividends, and when 1,00,000 is drawn as salary.