1. Assume that Sunshine Company is an S-corporation. Alvin contributed $60,000 in exchange for 60% of the stock while his wifes best friend, Ann, contributed $40,000 in exchange for the remaining 40% of the stock when the corporation was formed this year. Alvin received a $2,400 per month salary ($28,800 in total). Ann doesnt work for the company, so she received no salary. The company made a $55,000 partial distribution of profits at the end of the year. (8 points)
   1. Calculate Sunshines ordinary income and separately stated items to be reported on Form 1120S. You should consider implications for any employer share of payroll tax expense associated with salaries paid to any employee for purposes of this question.
   2. What amounts and types of taxable income or gain, deductible expense or loss must Alvin report on his individual Form 1040 tax return related to Sunshine activity? You may assume Alvin has no other items of income outside of Sunshine when considering loss limitations.You may ignore the possibility of a QBI deduction associated with this income when considering Form 1040 items to be included in Alvins taxable income calculation.
   3. What amount of Alvins income will be subject to self-employment tax?
   4. What is Alvins basis in his Sunshine Company stock at the end of the year?
   5. Note that you do not need to complete Form 1120-S but this form and related schedules will be a useful guide in completing this portion of the assignment.

Project Facts:

Sunshine Company is a calendar year accrual-basis taxpayer and is in its first year of operations. Sunshine Company had the following income, expense, and loss items for the current year:

Sales	$655,000
Corporate dividend (from 5% owned corporation)	70,000
Municipal bond interest	25,000
Long-term capital gain	1,000
Short-term capital loss	(8,000)
Cost of goods sold	325,000
Depreciation expense	62,000
Nondeductible fines	4,000
Advertising expense	8,000
Utilities expense	7,000
Rent expense	5,000

Furthermore, Sunshines liabilities (all recourse) increased from $0 on 1/1 to $300,000 on 12/31 of the current year.

Additional Background Facts:

Sunshine is a dive shop that operates out of Key West, FL and sells retail merchandise of interest to beachgoers including swimsuits, snorkeling and scuba diving equipment, surf boards, boogie boards, etc. Alvin Smart, a certified scuba diving instructor, owns the business. In addition, Alvin manages the dive shop and operates tours to local snorkeling and scuba diving areas of interest as a way to generate additional revenue.

Sunshine is a calendar-year accrual basis taxpayer in its first year of operations (2022). Business began on January 3, 2022. For Part 1, assume Alvin is the sole owner. For Parts 2-4, assume Alvin co-owns the business with Ann Webb, who does not work for the business.

Addresses and taxpayer identification numbers are as follows:

Sunshine		Alvin Smart		Ann Webb
789 Duval St.		456 Greene St.		123 Francis St.
Key West, FL 33040		Key West, FL 33040		Key West, FL 33040
FEIN: 12-3456789		SSN: 123-45-6789		SSN: 987-65-4321

Answer rating: 100% (QA)

Sunshine Company Tax Analysis Part 1 Sunshines Ordinary Income and Form 1120S A Ordinary Income Sales655000 Corporate Dividend 50 excluded70000 50 350... View the full answer