Loretta plans to start a small business, which will operate as a corporation. In year 0, she expects the corporation to generate a loss of $100,000. Subsequently, she expects the corporation to be profitable, and projects profit of $150,000 in year 1, and $250,000 in year 2. Loretta's personal marginal tax rate on ordinary income is 37%. Using Appendix A and a 10% discount rate, calculate the present value of expected tax savings and 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) $52,910 total tax cost
B) $89,855 total tax cost
C) $99,772 total tax cost
D) $0

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The Answer of Loretta plans to start a small business, which will operate as a corporation. In year 0, she expects the corporation to generate a loss of $100,000. Subsequently, she expects the corporation to be profitable, and projects profit of $150,000 in year 1, and $250,000 in year 2. Loretta's personal marginal tax rate on ordinary income is 37%. Using Appendix A and a 10% discount rate, calculate the present value of expected tax savings and 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) $52,910 total tax cost
B) $89,855 total tax cost
C) $99,772 total tax cost
D) $0

Loretta Plans to Start a Small Business, Which Will Operate