Corporations Concluded

1. (TCO E) For federal tax con measureptions, royalty income that is not derived in the characterless course of a production line is classified as (Points 5) portfolio income. answer mobile income. passive income. None of the to a higher place 2. (TCO F) When comparing corporate and individual taxation, the side by side(p) statement is true (Points 5) Unlike individual taxpayer, corporate whitethorn not have a long-term gravid issue carryforward. Both types of taxpayers have percentage limitations on the charitable contribution deduction, coupled with a carryover of the excess contribution. All taxpayers may carry authorize operate losings back two twelvemonths, forward 20 years.All of the above. answer 3. (TCO H) Al and Amy file a phrase return for the 2012 tax year. Their familiarized gross income is $80,000. They had net investment income of $7,000. In 2012, they had the following pastime expenses face-to-face credit card interest $4,000 Home mortgage interest $8, 000 Investment interest (on loans used to profane stocks) $10,000 What is the interest deduction for Al and Amy for the 2012 tax year? (Points 5) $8,000 $15,000. answer $12,000 $18,000 4. (TCO B) A contribution made to the following donee is not deductible. (Points 5) Boy Scouts of America Oxford University, England. answerSociety for the Prevention of Cruelty to Animals Michigan extract University California State Fair (an exertion of the State of California) 5. (TCO A) The following taxes were paid by Tim Real estate taxes on his crime syndicate $2,000 State income taxes $900 State gasoline tax (personal use of automobile) $150 In itemizing his deductions, what is the union that Tim may take 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 separate expenses of $310,000, and dividends received from a 45 percent-owned domestic stomach 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 close held C corporation 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 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 limited partnership, and a $30,000 passive loss from a real estate rental 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 sole proprietorship, and Steve is the sole shareholder of a C (regular) corporation.Each business sustained a $14,000 operating loss and a $3,000 capital loss for the year. label how these losses provide affect the taxable income of the two owners? (Points 17) A sole proprietorship is taxed through 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 reported loss would graduation any income Jen reported from any another(prenominal) source on her personal income tax filed. As a noncorporate taxpayer Jen feces also deduct the $3000 capital loss for the year.As the sole shareholder of a C corp Steve will see no achievement 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 each( prenominal) of the following a. at-risk rules b. suspended passive activity losses c. material engagement (Points 18) a. at-risk rules rendering Losses from a business operation are limited to the amount of money you can very 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 realized 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 incoming tax year. Suspended losses are incurred as a result of passive activities, and can besides be carried forward.Suspended losses that are incurred as a result of the disposition of a passive interest are subject to an annual capital loss limit. Suspended losses can, however, be used to off set income realized in a later year that is generated from material participation in the activity that ab initio produced the loss. For example, if a taxpayer incurs a $5,000 suspended loss in one year from a passive activity and then 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 participation. Definition A set of criteria that determines whether a taxpayer is a material participant in a business venture. The material participation test 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 during the year in the activity. The taxpayer does cheeringly all the work in the activity.The taxpayer works more than 100 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(prenominal) 10 years. The activity is a personal service 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 omit of material participation can result in passive loss rules. If you think lack of material participation may be a n issue in your business, check with your tax adviser.