The profit and loss statement of Kitsch Ltd., an S corporation, shows $100,000 b

Question

The profit and loss statement of Kitsch Ltd., an S corporation, shows $100,000 book income. Kitsch is owned equally by four shareholders. From supplemental data, you obtain the following information about items that are included in book income.

a. The entity's nonseparately stated income is $82,000.

b. The portion of nonseparately stated income or loss for James Billings, one of the Kitsch shareholders, is $20,500.

c. What is James Billings’ share of tax-exempt interest income, if any?
$

Is the income taxable to him this year?
not taxable

Selling expenses ($21,200) Tax-exempt interest income 3,000 Dividends received 9,000 §1231 gain 7,000 Depreciation recapture income 11,000 Net income from passive real estate rentals 5,000 Long-term capital loss (6,000) Salary paid to owners (each) (12,000) Cost of goods sold (91,000)

Explanation / Answer

Answer

A. Book income           $100,000
Add: Long-term capital loss    $6,000
                                         $106,000
Less:
Dividends received                  $9,000
Tax-exempt interest income      3,000
Section 1231 gain                    7,000
Recovery of bad debts              5,000 (24,000)
Nonseparately stated income             $ 82,000

B. portion of nonseparately stated income or loss for James Billings, one of the Kitsch shareholders, is $20,500 ($82,000 ÷ 4).

C.James Billings’ share of tax-exempt interest income:

3000/4 =$750

D.

The income taxable to him this year $20,500 is not taxable.

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