The officers of a corporation are responsible for hiring and overseeing the board of
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Alice, Bob, Carol and Dave form Granma’s Goodies, LLC to sell their homemade candies. Alice contributes 10% of the start up capital; Bob 20%, Carol 30% and Dave 40%. They agree to divide profits equally. The LLC is member-managed by Carol and Dave. Alice and Bob invested but are not involved in running the business. The LLC earns $100,000 in Year 1 and is taxed as a pass-through. What will the LLC and the members report on their income tax returns in year 1?
- >Bob will report $10,000 Bob $20,000; Carol $30,000; and Dave $40,000 since LLCs must divide the profit according to percentage of capital contribution. The LLC will not pay income tax.
- >The LLC will report $100,000 and pay income tax on this amount at a flat rate of 21%. The members will not report income or pay any taxes.
- >The LLC will not pay income tax. Each member will report $25,000 on their individual income tax return.
- >The LLC will report $100,00 in income and pay $21,000 in income tax (at the flat rate of 21%). The members will divide the remaining $79,000 evenly and each will report $19,750 on their individual income tax.