Question

The company FPA has the following income, expense, and loss items for the current year.

Sales $850,000
Tax-exempt interest $40,000
Long-term capital gain $85,000
Short-term capital loss $35,000
Passive activity loss $20,000
Cost of goods sold $480,000
Depreciation $40,000
Section 179 expense $50,000
Other operating expenses $200,000
Net operating loss (from previous year) $24,000

Prepare a calculation of taxable income for the following scenarios and indicate the tax form(s) to report the business activity: S Corporation owned equally by Henry, Iris and Jasmine

Answer 1

calculation of taxable income for the Corporation owned by Kim S corporation

Particulars	$Amount
Sales	850000
Add: Long term capital gain	85000
Less: Cost of goods sold	480000
Less: Section 179 expense	50000
Less: Other operating expense	200000
Less: Short term capital loss	35000
Less: Prevous period's operating loss	24000
Taxable Income	146000

The passive loss would not be deducted as it would be reduced from passive income only and the depreciation expense would not be deducted as the Section 179 expense provides more deduction and we can deduct either depreciation or Section 179 expense.