Pear, an individual, plans to start a small business, which will operate as a corporation. In year 0, she expects the corporation to generate an ordinary loss of $900,000. Subsequently, she expects the corporation to be profitable, and projects ordinary profit of $1,350,000 in year 1, and $2,250,000 in year 2. Pear's personal marginal tax rate on ordinary income is 37. Assuming a corporate tax rate of 21% and a 10% discount rate, calculate the present value of expected tax costs on the business earnings for the first 3 years of operations if the business makes an S corporation election. Assume the excess business loss limitation does not apply.
a. $849,150.
b. $808.691.
c. $476,190.
d. $1,069 200.
Answers: 3
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Pear, an individual, plans to start a small business, which will operate as a corporation. In year 0...
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