Corporations Concluded

1. (TCO E) For federal value purposes, royalty income that is not derived in the ordinary course of a business is classified as (Points 5) portfolio income. get along active income. motionless income. N champion of the above 2. (TCO F) When comparing corporate and single taxation, the following statement is true (Points 5) Unlike individual taxpayer, corporate may not have a long-term capital red carryforward. some(prenominal) types of taxpayers have percentage limitations on the charitable contribution deduction, coupled with a carryover of the excess contribution. All taxpayers may carry meshing operate dischargees back two years, forward 20 years.All of the above. break up 3. (TCO H) Al and Amy wedge a joint return for the 2012 tax year. Their adjusted hoggish income is $80,000. They had net investment income of $7,000. In 2012, they had the following bet expenses Personal credit observance interest $4,000 Home mortgage interest $8,000 Investment interest (on loa ns utilise to buy stocks) $10,000 What is the interest deduction for Al and Amy for the 2012 tax year? (Points 5) $8,000 $15,000. swear out $12,000 $18,000 4. (TCO B) A contribution made to the following donee is not deductible. (Points 5) son Scouts of America Oxford University, England. answerSociety for the Prevention of Cruelty to Animals Michigan articulate University California State Fair (an exercise of the State of California) 5. (TCO A) The following taxes were paid by Tim true(a) estate taxes on his home $2,000 State income taxes $900 State gasoline tax (personal use of automobile) $150 In itemizing his deductions, what is the measuring stick that Tim may claim as a deduction for taxes? (Points 5) $2,000 $2,900. answer $3,050 $0 6. (TCO F) Hoover, Inc. had gross receipts from operations of $230,000, operating and another(prenominal) expenses of $310,000, and dividends received from a 45 percent-owned domestic pot of $120,000.Hoovers tax position for the year is (Points 5) $8,000 taxable income. $56,000 net operating loss. answer $40,000 taxable income. $80,000 net operating loss. 7. (TCO G) All of the outstanding stock of a closely held C pile is owned equally by David smith and Steve Bufusno. In 2012, the corporation generates taxable income of $30,000 from its active business activities. In addition, it earns $20,000 of interest from investments and incurs a $40,000 loss from a passive voice activity. How much income does the C corporation report for 2012?(Points 5) $10,000 of portfolio income $0 $20,000 of portfolio income. answer None of the above 8. (TCO G) Bob, who is single, has $90,000 of salary, $25,000 of income from a express mail partnership, and a $30,000 passive loss from a real estate letting activity in which he actively participates. His modified adjusted gross income is $90,000. Of the $30,000 loss, how much is deductible? (Points 5) $30,000. answer $10,000 $25,000 $0 9. (TCO F) Jen owns a resole proprietorship, a nd Steve is the sole sh atomic number 18owner of a C (regular) corporation.Each business sustained a $14,000 operating loss and a $3,000 capital loss for the year. Evaluate how these losses ordain affect the taxable income of the two owners? (Points 17) A sole proprietorship is taxed by the business owners personal tax return. Therefore Jen would enter the $14,000 operating loss from the proprietorship on Schedule C of Form 1040 or one of its variants. This describe loss would moon curser all income Jen reported from any other source on her personal income tax filed. As a noncorporate taxpayer Jen lowlife also deduct the $3000 capital loss for the year.As the sole shareholder of a C corp Steve will see no effect on his taxable income as the shareholder. Income from a C corporation is reported when the shareholder receive dividends. C corporation losses are not reported by the shareholders. 10. (TCO G) Briefly (1) define and (2) discuss the purpose and impact of apiece of th e following a. at-risk rules b. hang passive activity losses c. significant conflict (Points 18) a. at-risk rules Definition Losses from a business operation are curb to the amount of money you bottomland in reality lose in the business.You are subject to at-risk rules if you are filing Schedules C, E, or F. Tax laws limiting the amount of losses an investor (usually a limited partner) can claim. Only the amount actually at risk can be deducted. b. suspended passive activity losses Definition A capital loss that cannot be completed in a given tax year due to passive activity limitations. These losses are therefore suspended until they can be netted against passive income in a future tax year. hang losses are incurred as a consequence of passive activities, and can only be carried forward.Suspended losses that are incurred as a result of the disposition of a passive interest are subject to an yearly capital loss limit. Suspended losses can, however, be used to offset income realized in a later year that is generated from visible betrothal in the activity that initially produced the loss. For example, if a taxpayer incurs a $5,000 suspended loss in one year from a passive activity and consequently materially participates in the activity the following year and earns $10,000, then the suspended loss may be applied against $5,000 of the earned income, leaving the taxpayer with $5,000 of declarable income for the year.c. material elaborateness. Definition A set of criteria that determines whether a taxpayer is a material participant in a business venture. The material participation turn out will determine whether business income received by the taxpayer is active or passive. Material participation is determined each year. The IRS has seven tests to determine material participation The taxpayer works 500 hours or more(prenominal) during the year in the activity. The taxpayer does substantially all the work in the activity.The taxpayer works more than one C hours in the activity during the year and no one else works more than the taxpayer. The activity is a significant participation activity (SPA), and the sum of SPAs in which the taxpayer works 100-500 hours exceeds 500 hours for the year. The taxpayer materially participated in the activity in any 5 of the prior 10 years. The activity is a personal attend to activity and the taxpayer materially participated in that activity in any 3 prior years.Based on all of the facts and circumstances, the taxpayer participates in the activity on a regular, continuous, and substantial basis during such year. However, this test only applies if the taxpayer works at least 100 hours in the activity, no one else works more hours than the taxpayer in the activity, and no one else receives compensation for managing the activity. Determination of material participation is complicated, and lack of material participation can result in passive loss rules. If you think lack of material participation may be an issue in your business, check with your tax adviser.