Question

Identify which of the following statements is false.

A. The PTI (previously taxed income) represents the balance of undistributed net income which were already taxed.

B. The AAA balance can be negative, but the shareholder's basis in the S corporation stock cannot be less than zero.

C. Tax exempt income increase the AAA and the basis of the S corporation stock.

D. An S Corporation may or may not have accumulated Earnings and Profits

Elaine owns an unincorporated manufacturing business. In 2017, she purchases and places in service $600,000 of qualifying five year equipment for use in her business. Her taxable income from the business before any section 179 deduction is $100,000. Which of the following statements is true?

A. Elaine cannot deduct any Section 179 deduction for 2017

B. Elaine can deduct $100,000 as a Section 179 deduction in 2017 with a $400,000 carryover to next year

C. Elaine can deduct $100,000 as a Section 179 deduction in 2017 with a $500,000 carryover to the next year

D. Elaine can deduct $500,000 as a section 179 deduction in 2017

Charles, an individual, owned 100% of the Alpha, an S corporation. At the first of the year, Charles' basis in Alpha was $25,000. In the current year, Alpha realized ordinary income of $1,000; and a long term capital gain of $3,000. Alpha distributed $25,000 to Charles at the end of the year. What amount of the $25,000 is taxable to Charles?

A.  $0

B.  $7,000

C. $1,000
D. $25,000

Answer 1

Information regarding 1st Question is missing. Please provide the same.

2. C. Elaine can deduct $100,000 as a Section 179 deduction in 2017 with a $500,000 carryover to the next year- TRUE

Depreciation is deducted from the Gross income, that decreases the taxable income. depreciation appears in the income statement since the FY in which the asset is bought because it is considered that asset's value starts depreciating the very time it is bought. The amount of depreciation to be deducted from taxable income depends oin the depreciation method followed by the firm. Generally used method is straight line method where: Depreciation per yr= (Total asset cost- expected salvage value)/ Life of the asset. In the above case if we assume that asset bought has no resale value (ie no salvage value) then depreciation amount = 6,00,000/5= 1,20,000. But the total cost should be depreciated to 0 by the end of useful life of the asset.In this option 1,00,000 can be deducted in 2017 as depreciation and the rest 5,00,000 can be carried forward.

3. A 0$, because the income of 25000$ is distributed income which is calculated after Tax deduction only.