Question

(a) X Co. is wholly owned by individual A. X has operating taxable income of 100...

(a) X Co. is wholly owned by individual A. X has operating taxable income of 100 for the year. In addition, X received 100 of IBM dividends. What will be X's taxable income?

(b) Suppose instead that X had an operating loss of 50 (in addition to the 100 of IBM dividends). What is X's taxable income?

(c) Suppose instead that X had an operating loss of 51. What is X's taxable income?

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Answer #1

a. X's taxable Income = Dividend Income + Operating income

X's taxable Income = $100 + $100

X's taxable Income = $200

b. Operating Loss can be up to 50% of other income. Thus X can set off operating loss of $50 against IBM dividends and show a taxable income of $50

c.  Operating Loss can be up to 50% of other income. Thus X can set off operating loss of $50 against IBM dividends and show a taxable income of $50. The Remaining $1 has to be carried forward and set off against income in the next year.

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