Zykago Inc. started business in 2018 and is an accrual basis taxpayer.


Assume that Zykago takes advantage of all potential options to defer income and accelerate deductions and has done so since formation.

• At formation, $35,000 of start-up costs were incurred.
• All dividend income was received from US based, 10% owned entities.
• Sold ZZ Corp common stock in May 2021 for $75,000. Purchased for $90,000 in Dec 2019.
• In 2020, received $84,000 prepayment for services to be provided from Sept 1, 2020 to Aug 31, 2022. $14,000 of the prepayment was included in 2020 sales; $42,000 is included in 2021 gross sales.
• Not included in gross sales is $125,000 related to prepayments received for inventory in the last month of 2021; items will be delivered to customers by the end of January 2022.
• Charitable contributions all in cash. Additionally, on Dec 5, 2021, board approved a $25,000 donation to a local school district that will be paid on February 1, 2022.
• Paid their pest control service $24,000 on Aug 1, 2021, for a contract that extends from Aug 1, 2021 to July 31, 2022. They have had pest control in the past and plan to do so again in the future.
• State income tax amount is fixed
• Has: $95,000 NOL carryforward from 2020, $25,000 short-term capital loss carryforward, $12,000 of unrecaptured net 1231 losses since the start of the business
• Purchased and placed a new machine in service on Sept 1, 2020. The purchase price was $780,000. 2021 book depreciation for the machine was $56,800.
• Depreciation expense for tangible property previously placed in service is as follows:
•Property acquired and placed in service 2018-2020 Book depreciation 50,000 Tax depreciation 62,000

Please calculate Zykago Inc’s taxable income/loss for 2021.

Answer rating: 100% (QA)

Startup costs 35000 Dividend income 10 x 84000 8400 Shor... View the full answer