Check my answer. Ellie and Linda are equal owners in Otter Enterprises, a calendar year business. During the current year, Otter Enterprises has $320,000 of gross income and $210,000 of operating expenses. In addition, Otter has a long-term capital gain of $15,000 and makes distributions to Ellie and Linda of $25,000 each. Discuss the impact of this information on the taxable income of Otter, Ellie, and Linda if Otter is: A partnership. Income generated for a partnership is taxable at the shareholder level Otter - less expenses = ordinary income (320,000-210,000=110,000) Add capital gain 110,000+15,000=125,000 taxable income Divide by each partners’ share (Ellie and Linda) = 125,000/2=62,500 taxable income for each partner. An S corporation. S Corps generally do not pay Federal Income tax. Income generated for an S Corp is passed through to the shareholder and each shareholder pays taxes on their share. Since there are two shareholders, Ellie, and Linda. Otter - less expenses = ordinary income (320,000-210,000=110,000) Add capital gain 110,000+15,000=125,000 taxable income Divide by each shareholder = 125,000/2=62,500 taxable income for each shareholder. A C corporation. Income generated for a C corp is taxable at the entity level. Dividends distributed to shareholders is also taxable but at the ordinary income rate of the individual taxpayer. The taxable income for Otter would be Otter - less expenses = ordinary income (320,000-210,000=110,000) Add capital gain 110,000+15,000=125,000 taxable income Shareholders of C corps pay taxes when the dividends are paid to them. Since Ellie and Linda were each paid $25,000, that is their taxable income
Check my answer.
- Ellie and Linda are equal owners in Otter Enterprises, a calendar year business. During the current year, Otter Enterprises has $320,000 of gross income and $210,000 of operating expenses. In addition, Otter has a long-term
capital gain of $15,000 and makes distributions to Ellie and Linda of $25,000 each. Discuss the impact of this information on the taxable income of Otter, Ellie, and Linda if Otter is: - A
partnership . - Income generated for a partnership is taxable at the shareholder level
Otter - less expenses = ordinary income (320,000-210,000=110,000)
Add capital gain 110,000+15,000=125,000 taxable income
Divide by each partners’ share (Ellie and Linda) = 125,000/2=62,500 taxable income for each partner.
- An S corporation.
S Corps generally do not pay Federal Income tax. Income generated for an S Corp is passed through to the shareholder and each shareholder pays taxes on their share. Since there are two shareholders, Ellie, and Linda.
Otter - less expenses = ordinary income (320,000-210,000=110,000)
Add capital gain 110,000+15,000=125,000 taxable income
Divide by each shareholder = 125,000/2=62,500 taxable income for each shareholder.
- A C corporation.
Income generated for a C corp is taxable at the entity level. Dividends distributed to shareholders is also taxable but at the ordinary income rate of the individual taxpayer. The taxable income for Otter would be Otter - less expenses = ordinary income (320,000-210,000=110,000)
Add capital gain 110,000+15,000=125,000 taxable income
Shareholders of C corps pay taxes when the dividends are paid to them. Since Ellie and Linda were each paid $25,000, that is their taxable income.
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