Calculate the percent annual before-tax return Corporate tax rate is a flat 21%
Ex-
12% of $250,000 = $250,000.00 $30,000
LLC isn't liabale for entity level tax = 0
Earnings after entity level tax is $30,000
Corporation is liable for entity level tax calculated at 21% = $30,000 * 21% = $6,300.00
After tax corp entity earnings are $30,000 - $6,300 = $23,700.00
Deduct 50% of self-employment tax for LLC
Net earnings from self-employment is 92.35% of a taxpayers self-employment income
Emma is required to pay SE tax of 2.9% of net earnings from SE
The dedcution for 50% of SE tax is calculated by multiplying $30,000 * 92.35% * 2.9% *
50% = $401.72 - $402 rounded
The deduction is not for c-corp
This deduction is for individuals not business entities
LLC is eligible for QBI deduction of $5920 calculated as
20% of $29,598
$29,598 is calculated by substracting the SE tax of $402 - $30,000 = ($29,598.00)
C-corp is taxed twice and not eligilble for dedcution
Net income taxable to owner
o
LLC it is calculated by dedcuting the sum of $5,920 and $402 from $30,000
$5920 + $402 - $30,000 = ($23678.00)
o
C-Corp the net taxable income is the same as the earnings after the entity level
tax $23,700
Emma's marginal tax rate of 35% results in an income tax of $8,287
o
LLC net income taxable by owner $23,678 * 35% =
$8,287.3
o
C-Corp pay a second level of tax on the corporate income which is 15% in this
case $23678 * 15% =
$3551.7 (second level tax)
SE tax $30,000 * 92.35% * 2.9% =
$803.45
For LLC Emma is required to pay an additional medicare tax of 0.9%
of SE
For C-Corp Emma is required to pay additional medicare tax of 3.8% net investment
income tax
on dividends and capital gains
o
Additional medicare tax calculated $30,000 * 92.35% * 0.9% =
$249.35
o
Net investment income tax for corp $23,700 * 3.8% =
$900.6
(net investment
tax)
Owner level tax for LLC $8287 + $803 + $249 = $9339.00 (SE tax, medicare tax, and
marginal tax )
Owner level tax for C-corp $3555 + $901 = $4456.00 (second level plus net investment
tax)
After tax cash for LLC is $30,000 - $9339 = $20661.00
After tax cash for C-corp is $23,700 - $4456 = $19244.00
The overall tax rate is calculated as a percentage of the total tax paid on the total
earnings
o
Overall tax rate for LLC $9339/$30000 = $0.31
o
Overall for C-corp $10,756/$30,000 = $0.36
