a.Â Osprey Company is a proprietorship, and Juanita did not make any withdrawalsÂ from the business during the year.
b.Â Osprey Company is a C corporation and pays no dividends during the year.Â
34.Â LO.1 Ellie and Linda are equal owners in Otter Enterprises, a calendar yearÂ business. During the year, Otter Enterprises has $320,000 of gross income and $210,000 ofÂ operating expenses. In addition, Otter has a short-term capital loss of $15,000 and makesÂ distributions to Ellie and Linda of $25,000 each. Discuss the impact of this information onÂ the taxable income of Otter, Ellie, and Linda if Otter is:
a.Â A partnership.
b.Â An S corporation.
c.Â A C corporation.
35.Â LO.1, 2 In the current year, Azure Company has $350,000 of net operatingÂ income before deducting any compensation or other payment to its sole owner, Sasha. InÂ addition, Azure has interest on municipal bonds of $25,000. Sasha has significant incomeÂ from other sources and is in the 35% marginal tax bracket. Based on this information,Â determine the income tax consequences to Azure Company and to Sasha during the year forÂ each of the following independent situations.
a.Â Azure is a C corporation and pays no dividends or salary to Sasha.
b.Â Azure is a C corporation and distributes $75,000 of dividends to Sasha.
c.Â Azure is a C corporation and pays $75,000 of salary to Sasha.
d.Â Azure is a sole proprietorship, and Sasha withdraws $0.
e.Â Azure is a sole proprietorship, and Sasha withdraws $75,000.
39. LO.1, 4, 7 Benton Company (BC) has one owner, who is in the 35% FederalÂ income tax bracket. BCs gross income is $295,000, and its ordinary trade or businessÂ deductions are $135,000. Compute the tax liability on BCs income for 2012 under theÂ following assumptions:
a.Â BC is operated as a proprietorship, and the owner withdraws $70,000 for personal
b.Â BC is operated as a corporation, pays out $70,000 as salary, and pays noÂ dividends to its shareholder.
c.Â BC is operated as a corporation and pays out no salary or dividends to itsÂ shareholder.
d.Â BC is operated as a corporation, pays out $70,000 as salary, and pays out theÂ remainder of its earnings as dividends.
e.Â Assume that Robert Benton of 1121 Monroe Street, Ironton, OH 45638 is theÂ owner of BC, which was operated as a proprietorship in 2012. Robert is thinking aboutÂ incorporating the business in 2013 and asks your advice. He expects about the sameÂ amounts of income and expenses in 2013 and plans to take $70,000 per year out of theÂ company whether he incorporates or not. Write a letter to Robert [based on your analysisÂ in (a) and (b) ] containing your recommendations.
Jr., William H. Hoffman,, William A. Raabe, James E. Smith, David M. Maloney. SouthWestern Federal Taxation 2013: Corporations, Partnerships, Estates and Trusts, 36th Edition.
South-Western, 2016-04-11. <vbk:9781285309705#outline(2.11)>.