TAxable Income
Running head: taxable income 0
Accounting:
Robert Shulzinsky
Southern New Hampshire University
Taxable income for sole proprietorship
A sole proprietorship is an entity similar to the owner’s entity. Therefore, the results are reported on owner’s return. As a result, the items that receive special treatment from the owner are accounted separately. The items not included in this operating income calculation include the losses, tax-exempt interest, the passive activity loss, capital gains and net operating loss. The operating income is 80,000
Sales $850,000
Cost of goods (480,000)
Depreciation (40,000)
179 expenses (50,000)
Other operating expenses (200,000)
Operating income $80,000)
Therefore, the sole proprietor is supposed to include $80,000 of his operating income on his personal return. Note that the losses and the capital gains should be netted with the other losses and capital gain for the year. Additionally, the inherent tax-exempt interest should be reported of personal returns though excluded from the gross income (Magill, 1945)
2. Partnership equally owned by Vinnie and Chandra
It is imperative to note that income that accrues from partnership should be taxed at the partner’s level. Therefore, the items subject to different rules should be stated separately (Hanlon, Laplante, & Shevlin, 2005). In this case, the items excluded from the operating income calculation include losses and capital gains, tax-exempt interest, passive activity loss as well as section 179 deductions. Note that the supposedly net operating loss is supposed to have been distributed to the partners in the years that precede the case. The operating income of the partners is therefore, $130,000.
Sales $850,000
COG sold (480,000)
Depreciation (40,000)
Other operating expenses (200,000)
Operating income $130,000
Therefore, Chandra and Vinnie are supposed to report one-half of their operating income each as well as their stated items on their personal returns.
Corporation owned by Kim
Corporations have separate legal entity from themselves. Tax is based on any profit they make from conducting the business.
The taxable income includes
Sales $850,000
Cost of goods sold $480,000
Tax-exempt interest $40,000
Other operating expenses $200,000
Net operating loss (from previous year) $24,000
Section 179 expense $50,000
Any expenditure the corporation incur in not taxable as it is regarded as capital in nature. Depreciation on fixed assets is also not deductible for tax purposes.
S corporation owned equally by Henry, Iris, and Jasmine
For an S corporation, they have a separate of taxation.
Sales $850,000
Long-term capital gain $85,000
Depreciation $40,000
Cost of goods sold $480,000
. Other operating expenses $200,000
Net operating loss (from previous year) $24,000
References
Hanlon, M., Laplante, S. K., & Shevlin, T. J. (2005). Evidence on the possible information loss of conforming book income and taxable income. Available at SSRN 686402.
Magill, R. F. (1945). Taxable Income. Ronald Press.
