Logan, a 50 percent shareholder in Military Gear Inc., is comparing the tax cons

Question

Logan, a 50 percent shareholder in Military Gear Inc., is comparing the tax consequences of losses from C corporations with losses from S corporations. Assume Military Gear Inc has a $109,000 loss for the year, Logan's tax basis in his Military Gear Inc. stock was $154,500 at the beginning of the year, and he received $79,500 ordinary income from other sources during the year. Assuming Logan's marginal regular income tax rate is 15%, how much more tax will Logan pay currently if Military Gear Inc. is a C corporation compared to the tax he would pay if it were an S corporation?

Explanation / Answer

Logan would pay $11,925 in taxes if Military Gear Inc. is a C corporation ($79,500 × 15 percent). If it were an S corporation, he would have to pay $4,425 in taxes (($79,500 - ($50,000)) × 15 percent). Thus, he has to pay $7,500 more in taxes ($11,925 - $4,425) currently if Military Gear, Inc. is a C corporation.

Related Questions

Navigate

• Browse (All)
• Browse L
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.