While James Craig and his former classmate Paul Dolittle both studied accounting at school, they ended up pursuing careers in professional cake decorating. Their company, Good to Eat (GTE), specializes in custom-sculpted cakes for weddings, birthdays, and other celebrations. James and Paul formed the business at the beginning of 2019, and each contributed $50,000 in exchange for a 50 percent ownership interest. GTE also borrowed $200,000 from a local bank. Both James and Paul had to personally guarantee the loan. Both owners provide significant services for the business. The following information pertains to GTE’s 2019 activities:
1) Assume James and Paul formed GTE as an S corporation. Compute the tax basis of Paul’s stock in GTE at the end of 2019.
2) Assume James and Paul formed GTE as an LLC. Compute the tax basis of Paul’s stock in GTE at the end of 2019.
3) Assume James and Paul formed GTE as a C Corporation. What amount of tax does GTE pay on the $1,000 qualified dividend it received?
Get Answers For Free
Most questions answered within 1 hours.