Question

In the current year, Riflebird Company had operating income of $220,000, operating expenses of $175,000, and a long-term capital loss of $10,000. How do Riflebird Company and Roger, the sole owner of Riflebird, report this information on their respective Federal income tax returns for the current year under the following assumptions?

Riflebird Company is a C corporation (no dividends were paid during the year).

Roger reports (...) net operating profit and (...) long-term capital loss on his tax return. Riflebird Company will report taxable income of (...) on its Form 1120.

Answer 1

Answer:-

A C corporation is a separate taxable entity which files a corporate income tax return. Riflebird Company will report taxable income of $45,000 ($220,000 operating income - $175,000 operating expenses) on its Form 1120. A corporation cannot currently deduct a net capital loss. Instead, the LTCL is subject to the corporate capital loss carryover rules (carried back three years and forward five years, as STCL). Riflebird Company's taxable income has no effect on the shareholders until such time a dividend is paid. When dividends are paid, shareholders must report dividend income on their tax returns.

● Therefore, Roger does not report Riflebird's net profit or long-term capital loss on his individual return.