A sole proprietor wants to incorporate and has requested a projection of the first-year tax results as a C corporation and as an S corporation. Taxable income from ordinary operations is projected to be $100,000. The company expects to make a $20,000 charitable contribution and projects a long-term capital loss on stock of $7,000.

Which of the following projections is correct?

a. C corporation, $90,000 taxable income;

S corporation, $80,000 ordinary business income; long-term capital loss is separately stated.

b. C corporation, $90,000 taxable income;

S corporation, $100,000 ordinary business income; remaining items are separately stated.

c. C corporation, $80,000 taxable income;

S corporation, $100,000 ordinary business income; remaining items are separately stated.

d. C corporation, $73,000 taxable income;

S corporation, $80,000 ordinary business income; long-term capital loss is separately stated.

Question

Business

Gael Randolph

4 May, 19:01

A sole proprietor wants to incorporate and has requested a projection of the first-year tax results as a C corporation and as an S corporation. Taxable income from ordinary operations is projected to be $100,000. The company expects to make a $20,000 charitable contribution and projects a long-term capital loss on stock of $7,000.

Which of the following projections is correct?

a. C corporation, $90,000 taxable income;

S corporation, $80,000 ordinary business income; long-term capital loss is separately stated.

b. C corporation, $90,000 taxable income;

S corporation, $100,000 ordinary business income; remaining items are separately stated.

c. C corporation, $80,000 taxable income;

S corporation, $100,000 ordinary business income; remaining items are separately stated.

d. C corporation, $73,000 taxable income;

S corporation, $80,000 ordinary business income; long-term capital loss is separately stated.

+3

Answers (1)

Know the Answer?

Javier Shaw · Answer 1

The answer is: B) C corporation, $90,000 taxable income; S corporation, $100,000 ordinary business income; remaining items are separately stated.

Explanation:

Contributions to charity made by an S Corporation are not tax deductible anymore since the changes made by the Tax Cuts and Jobs Act of 2017.

A C Corporation can deduct charitable contributions that amount up to 10% of its taxable income. In this case, the taxable income was $100,000, so 10% equals $10,000.