3. Logan, a 50 percent shareholder in Military Gear Inc., is comparing the tax c

Question

3. Logan, a 50 percent shareholder in Military Gear Inc., is comparing the tax consequences of losses from C corporations with losses from S corporations. Assume Military Gear Inc has a $100,000 loss for the year, Logan's tax basis in his Military Gear Inc. stock was $150,000 at the beginning of the year, and he received $75,000 ordinary income from other sources during the year. Assuming Logan's marginal income tax rate is 15%, how much more tax will Logan pay currently if Military Gear Inc. is a C corporation compared to the tax he would pay if it were an S corporation?

A. $0

B. $3,750

C. $7,500

D. $11,250

Explanation / Answer

C Corporation: Logan would pay $75000*15%= $11250

S corporation: Logan would pay ($75000-($150000-$100000))*15%= ($75000-50000)*15%= $3750

More tax which Logan would pay as a shareholder of Military Gear Inc as C corporation= $11250-$3750= $7500

Ans C $7500

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