Question

Mackenzie is considering conducting her business, Mac561, as either a single-member LLC or as an S corporation. Assume her marginal ordinary income tax rate is 37 percent, her marginal FICA rate on employee compensation is 1.45 percent, her marginal self-employment tax rate is 2.9 percent, and any employee compensation or Page 15-31self-employment income she receives is subject to the .9 percent additional Medicare tax. Also assume Mac561 generated $200,000 of business income before considering the deduction for compensation Mac561 pays to Mackenzie and Mackenzie can claim the full qualified business income deduction on Mac561’s business income. Determine Mackenzie’s after-tax cash flow from the entity’s business income and any compensation she receives from the business under the following assumptions:

Mackenzie conducted Mac561 as a single-member LLC.

How much after-tax cash flow?

Answer 1

Given data follows below:

Marginal ordinary income tax rate is= 37 percent.

FICA rate on employee compensation is = 1.45 percent

Marginal self-employment tax rate is 2.9 percent.

Mac561 generated of business income = $200,000.

Calculating Mackenzie conducted Mac561 as a single-member LLC. after-tax cash flow.

Particulars and Explanation	Amount($)
Mac561 generated of business income	200000
Subtract : QBI Deduction Generated of business income x 20% ( 200000 x 20%) = $40000	$40000
Deduction for 50% Self employment Tax ( 200000x 92.35 %x 29% x 50%)	2678
Total Income Taxable amount QBI Deduction + Deduction = 40000+ 2678 =42,678 Business income - 42678 200000 -42678 = 157322	$157322
Income Tax on Net Business Income (Total Income Taxable amount x 37%) (157322 x 37% )	58209
Self Employment Tax ( 200000 x 92.35% x 29% )	5356
Additional Medicare Tax ( 200000 x 92.35% x 0.9%)	1662
Total Tax	65227
After Tax Cash Flow	134773

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