Question

Maple, Inc. is an S corporation. It has accumulated Earnings & Profits and for three consecutive...

Maple, Inc. is an S corporation. It has accumulated Earnings & Profits and for three consecutive year-ends, more than 25 percent of its gross receipts have unfortunately consisted of dreaded passive investment income. This year, its passive investment income is $625,000, its deductions related to that passive investment income are $25,000, and its gross receipts equal $1,000,000. What amount of tax on excess passive investment income does Maple have for the current year?

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Sol :
If a corporation has always been an S corporation, the excess net passive income tax does not apply.

Excess net passive income tax applies to an S corporation if:

• The corporation has accumulated earnings and profits at the close of its tax year,

• The corporation has passive investment income for the tax year in excess of 25% of gross receipts, and

• The corporation has excess net passive income. Excess net passive income (ENPI) tax computation. Tax is 35% of excess net passive income.

The formula for Excess net passive income(ENPI)= NPI × [PII – (0.25 × GR)] ÷ PII

Net Passive Income(NPI) = Passive Investment Income - Deductions related to Passive Income

= $625,000-25,000 = $600,000

ENPI = $600,000 * [625,000-(0.25*1,000,000)] / 625,000

= $600,000 * 0.6

= $360,000

Net Passive Income Tax = $360,000*35%

= $126,000

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Post Corporation, an S corporation with prior year Subchapter C earnings and profits, has for its...
Post Corporation, an S corporation with prior year Subchapter C earnings and profits, has for its current taxable year total gross receipts of $500,000, including passive investment income of $300,000, $220,000 of which is interest income. Post also has expenses directly connected with the production of this interest income in the amount of $50,000. What is Post’s tax on excess net passive income? $ 51,042 $ 61,250 $ 36,458 $ 69,602
S Corporation elected S corporation status beginning in 2010 and will have Subchapter C earnings and...
S Corporation elected S corporation status beginning in 2010 and will have Subchapter C earnings and profits at the close of the current taxable year. This year, S expects that its business operations and investments will produce the following tax results: Gross income from operations - $75,000 Business deductions - $60,000 Tax-exempt interest - $23,000 Dividends - $12,000 Long-term capital gain from the sale of investment real property - $35,000 (a) Is S Corporation subject to the Section 1375 tax...
For the current year, Maple Corporation, a C corporation, reports taxable income of $252,000 before paying...
For the current year, Maple Corporation, a C corporation, reports taxable income of $252,000 before paying salary to its sole shareholder, Diane. Diane’s marginal tax rate on ordinary income is 35.9 percent (including the additional Medicare tax) and 18.8 percent on dividend income (including the 3.8% net investment income tax). If Maple pays Diane a salary of $198,000 but the IRS determines that Diane’s salary in excess of $150,000 is unreasonable compensation, what is the amount of the overall tax...
For the current year, Maple Corporation, a C corporation, reports taxable income of $397,000 before paying...
For the current year, Maple Corporation, a C corporation, reports taxable income of $397,000 before paying salary to its sole shareholder, Diane. Diane’s marginal tax rate on ordinary income is 35.9 percent (including the additional Medicare tax) and 18.8 percent on dividend income (including the 3.8% net investment income tax). If Maple pays Diane a salary of $222,000 but the IRS determines that Diane’s salary in excess of $175,000 is unreasonable compensation, what is the amount of the overall tax...
Keith, Inc., becomes an S corporation on January 1, 20X1. Sally, the sole shareholder, has a...
Keith, Inc., becomes an S corporation on January 1, 20X1. Sally, the sole shareholder, has a stock basis of $20,000 at January 1, 20X1, an accumulated adjustments account (AAA) balance of $0, and an earning and profits account in the amount of $6,000. For the 20X1 taxable year, Keith, Inc., has the following:        Taxable income                       $30,000        Tax-exempt income                       $4,000        Capital gain              ...
Comparative statements of retained earnings for Renn-Dever Corporation were reported in its 2018 annual report as...
Comparative statements of retained earnings for Renn-Dever Corporation were reported in its 2018 annual report as follows. RENN-DEVER CORPORATION Statements of Retained Earnings For the Years Ended December 31, 2018 2017 2016 Balance at beginning of year $ 7,133,952 $ 5,789,052 $ 5,964,552 Net income (loss) 3,548,700 2,440,900 (175,500 ) Deductions: Stock dividend (38,000 shares) 266,000 Common shares retired (134,000 shares) 268,000 Common stock cash dividends 969,950 828,000 0 Balance at end of year $ 9,446,702 $ 7,133,952 $ 5,789,052...
Problem 18-4 Statement of retained earnings [LO18-5, 18-7] Comparative statements of retained earnings for Renn-Dever Corporation...
Problem 18-4 Statement of retained earnings [LO18-5, 18-7] Comparative statements of retained earnings for Renn-Dever Corporation were reported in its 2018 annual report as follows. Problem 18-4 Statement of retained earnings [LO18-5, 18-7] Comparative statements of retained earnings for Renn-Dever Corporation were reported in its 2018 annual report as follows. RENN-DEVER CORPORATION Statements of Retained Earnings For the Years Ended December 31, 2018 2017 2016 Balance at beginning of year $ 7,060,452 $ 5,733,552 $ 5,904,552 Net income (loss) 3,488,700...
Trail Corporation has gross profits on sales of $140,000 and deductible expenses of $90,000. In addition,...
Trail Corporation has gross profits on sales of $140,000 and deductible expenses of $90,000. In addition, Trail has a net capital loss of $30,000. Trail's taxable income is $50,000 $20,000 $140,000 $60,000 Burt and Tiffany form Owl Corporation. Burt transfers property (basis of $20,000 and fair market value of $130,000), while Tiffany agrees to serve as Owl’s manager for one year. Each receives 100 shares of Owl Corporation stock. The value of Tiffany’s services for one year is $130,000. Which...
During the current year, Marlene, Nancy and Olive formed a new S Corporation. Solely in exchange...
During the current year, Marlene, Nancy and Olive formed a new S Corporation. Solely in exchange for stock, Marlene and Nancy contributed appreciated property, while Olive contributed services. The exchanges of Marlene and Nancy will be nontaxable if: Olive receives 30% of the stock Olive receives 80% of the stock Olive receives 15% of the stock Marlene and Nancy together receive 50% of the stock In June of 2018, Alice acquired her only machine for $30,000 to use in her...
Comparative Statements of Retained Earnings for Renn-Dever Corporation were reported as follows for the fiscal years...
Comparative Statements of Retained Earnings for Renn-Dever Corporation were reported as follows for the fiscal years ending December 31, 2019, 2020, and 2021. RENN-DEVER CORPORATION Statements of Retained Earnings For the Years Ended December 31 2021 2020 2019 Balance at beginning of year $ 7,063,292 $ 5,629,052 $ 5,754,552 Net income (loss) 3,321,700 2,370,900 (125,500 ) Deductions: Stock dividend (59,100 shares) 255,000 Common shares retired, September 30 (120,000 shares) 225,660 Common stock cash dividends 902,950 711,000 0 Balance at end...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT