Edmund and Gloria are starting a new business that they expect to operate at a net loss
Question:
- Edmund and Gloria are starting a new business that they expect to operate at a net loss for about five years. Both Edmund and Gloria expect to have substantial incomes during those years from other sources.
- Robin would like to incorporate her growing retail business for nontax rea-sons. Because she needs all of the net profits to meet personal obligations, Robin would like to avoid the corporate “double tax” on dividends.
- Tax Treatment of Various Entities.
Office Supplies Unlimited is a small office supply outlet. The results of its operations for the most recent year are summarized as follows:
Gross profit on sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,000
Cash operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,000
Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,500
Compensation to owner(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000
Distribution of profit to owner(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5,000
In each of the following situations, determine how much income is to be taxed (i.e., to be included along with any other income in calculating taxable income) to each of the taxpayers involved. Note: I’m not asking you to calculate taxes, only to state how much income is taxable.
- The business is a sole proprietorship owned by T.
- The business is a partnership owned by R and S with an agreement to share all items equally. S is guaranteed a salary of $20,000 (see above).
- The business is a corporation owned equally by U and K. K is employed by the business and receives a salary of $20,000 (see above). Generally speaking you should assume whenever we say a "corporation" we are referring to a C-Corp, unless otherwise stated that it is specifically an S-Corp.
