# Acct317Week1Chapter 15 HomeworkExample

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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