Gross Receipts of $70,000; Tax Exempt Interest Income of $4,000; Dividends of $1
ID: 1172500 • Letter: G
Question
Gross Receipts of $70,000; Tax Exempt Interest Income of $4,000; Dividends of $10,000; Supplies Expense of $3,000; and Utilities Expense of $1,500. What amount is the S Corporation's ordinary taxable income?
$75,500
$79,500
$70,000
$65,500
Bob and Sam each owned 50% of Lostalot, an S Corporation. Bob's basis is $30,000 and Sam's basis is $15,000. The corporation has operating loss for the current year of $50,000. How much loss can each shareholder deduct in the current year assuming they materially participate in the business:
Bob: $25,000; Sam: $15,000
Bob: $0; Sam: $0
Bob: $25,000; Sam: $25,000
Bob: $30,000; Sam: $15,000
Terra Corporation, a calendar-year taxpayer, purchases and places into service in 2017 machinery with a 7-year life that cost $650,000. The mid-quarter convention does not apply. Terra’s taxable income for the year before the Sec. 179 deduction is $700,000. What is Terra’s total maximum depreciation deduction related to this property?
$585,718
$521,345
$92,885
$500,000
Identify which of the following statements is false.
The PTI (previously taxed income) represents the balance of undistributed net income which were already taxed.
The AAA balance can be negative, but the shareholder's basis in the S corporation stock cannot be less than zero.
Tax exempt income increase the AAA and the basis of the S corporation stock.
An S Corporation may or may not have accumulated Earnings and Profits
Elaine owns an unincorporated manufacturing business. In 2017, she purchases and places in service $600,000 of qualifying five year equipment for use in her business. Her taxable income from the business before any section 179 deduction is $100,000. Which of the following statements is true?
$75,500
$79,500
$70,000
$65,500
Explanation / Answer
Answer 1:
Correct answer is $65,500
Workings:
Tax Exempt Income and Dividend are Separately Stated Items.
Hence,
S Corporation's ordinary taxable income is:
Gross Receipts = $70,000
Less, Supplies Expense = $3,000;
Less, Utilities Expense = $1,500
Ordinary Income = $65,500
Answer 2:
Correct answer is:
Bob: $25,000; Sam: $15,000
Explanation:
Bob and Sam each owned 50% of the S Corporation.
The corporation has operating loss for the current year of $50,000.
As such the share of loss for both Bob and Sam is = 50% * $50,000 = $25,000; but loss that each shareholder can deduct in the current year is limited to the amount of sum of shareholder's stock basis and debt owed to the shareholder by the corporation.
Bob's stock basis is $30,000 and Sam's stock basis is $15,000.
Hence Bob can deduct loss of $25,000 but Sam can deduct loss of $15,000 (limited to his stock basis) only.
Answer 3:
Correct answer is: $521,345
Workings:
Given:
The mid-quarter convention does not apply.
Terra’s taxable income for the year before the Sec. 179 deduction is $700,000.
If Terra corporation elect to deduct under section 179 the dollar limit is $500,000 and total cost it can deduct each year is limited to the taxable income from the active conduct of any trade or business during the year. Terra’s taxable income for the year is $700,000.
Hence maximum depreciation Terra can deduct is calculated below:
Maximum Sect. 179 deduction = $500,000
MACRS Depreciation [($650,000 - $500,000) × 14.29%] = $21,435
Total depreciation = $500,000 + $21,345 = $521.435
Answer 4:
Identify which of the following statements is false.
Correct answer is:
Tax exempt income increase the AAA and the basis of the S corporation stock.
Explanation:
Tax-exempt income increases Other Adjustment Account (OAA) not AAA..
All other statements are true.
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