Question

Determine taxable income in each of the following instances. Assume that the corporation is a C corporation and that book income is before any income tax expense.

Book income of $100,000 including capital gains of $4,000, a charitable contribution of $2,000, and travel and entertainment expenses of $6,000.

Book income of $184,000 including capital losses of $6,000, a charitable contribution of $24,000, and travel and entertainment expenses of $6,000.

Book income of $152,000 including municipal bond interest of $4,000, a charitable contribution of $10,000, and dividends of $6,000 from a 10% owned domestic corporation. The corporation also has a $16,000 charitable contribution carryover.

Book income of $258,000 including municipal bond interest of $4,000, a charitable contribution of $10,000, and dividends of $14,000 from a 70% owned domestic corporation. The corporation has a capital loss carryover of $12,000 and a capital gain of $5,000 in the current year.

Answer 1

A. Taxable income = $100000+($6000 * 50%) = $ 103000

• The capital gains and cheritable contributions are not adjusted.
• Deductible travel and entertainment expenses are limited to 50 % of the expense. Thus $ 3000 of the expense can not be deducted resulting in an increase in income.

B. Taxable income = $184000+ $6000 + ($6000 * 50%) + $2300 = $ 195300

• Capital losses are deductible only to the extent of capital gains, so the $ 6000 must be added back.
• Deductible travel and entertainment expenses are limited to 50 % of the expense. Thus $ 3000 of the expense can not be deducted resulting in an increase in income.
• The cheritable contribution are limited to 10% of taxable income before the cheritable contribution. In order to calculate the eprmitted contribution, we need to add back the entire contribution. Thus, income for the purposes of determinng the limitation is $184000 + $6000 + $3000 +$24000= $217000. The allowed cheritable contribution is thus, 21700. Because book income included a $24000 deduction and only 21700 is allowed , we need to add back $2300 to arrive at taxable income.

C. Taxable income = $152000- $4000( not taxable bond interest income) - ($6000 * 70%) - $ 5380 = $ 138420

• The cheritable contribution are limited to 10% of taxable income before the cheritable contribution. In order to calculate the permitted contribution, we need to add back the entire contribution. Thus, income for the purposes of determinng the limitation is $152000 - $4000 - $4200 +$10000= $153800. The allowed cheritable contribution is thus, 15380. Because book income included a $10000 deduction , we need to give additional deduction of $5380 to arrive at taxable income.

D. Taxable income = $258000 - $4000( not taxable bond interest income) - ($14000 * 80%) - $ 5000 (Capital loss carry forward to detoff current year gain) = $ 237800