The stock of X is owned equally by two shareholders: Y (an individual with a sto

Question

The stock of X is owned equally by two shareholders: Y (an individual with a stock basis of $100) and A (an individual with a stock basis of $40). X uses the accrual method, A and Y use the cash method, and all use the calendar year. (Assume 1059 does not apply.) Use a 34 percent corporate tax rate in this problem During the current year, X accrued income and expense as set forth : Gross income from business $500 Dividends on AT&T stock (consider section 243) $100 Interest on municipal bonds (section103) $100 Capital gain $100 Total $800 Deducible section162 (a)(1) business expenses $430 Noncapital expenses not deductible under section162 (e) $90 Capital losses (section1211 (a)) $146 Total $666 Net $134 X has always been an S corporation. How much is each shareholder’s personal income tax return affected for the current year by the tax items of X? (Show any S level taxes, separately computed income items for each shareholder, and nonseparately computed income for each shareholder.) please show your calculation step by step.

Explanation / Answer

STOCK BASIS OF Y=$100

STOCK BASIS OF A=$40

TAX RATE=34%

INCOME FROM BUSINESS=$500

LESS: BUSINESS EXPENSE=$430

PROFIT FROM BUSINESS=$70

DIVIDENDS ON AT&T STOCK=$100

INTEREST ON MUNICIPAL BONDS=$100

CAPITAL GAINS =$100

LESS:CAPITAL LOSS=$146(ASSUMED SETOFF POSSIBLE)

TAXABLE CAPITAL GAIN=0

TAXABLE INCOME=$70+$100+$100+0=$270

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