Heron Corporation is a personal service corporation. It had $230,000 of net active income, $40,000 of...

Heron Corporation is a personal service corporation. It had $230,000 of net active income, $40,000 of portfolio income, and a $250,000 passive loss during the year. How much is Heron’s taxable income for the year?

		a. $20,000.
		b. $40,000
		c. $270,000
		d. $520,000

Expert Solution

Answer :

Net active income = $230,000

Portfolio income = $40,000

Taxable income for the year = $230,000 + $40,000 = $270,000

Explanation to the terms used in the question :

Net Active income refers to income received from performing a service and includes wages, tips, salaries, commissions, and income from businesses in which there is material participation.

Portfolio income is money received from investments, dividends, interest, and capital gains. Royalties received from investment property also are considered portfolio income sources. It is one of three main categories of income. The others are active income and passive income

There are three types of income: earned income, passive income and portfolio income. Passive income is income earned from rents, royalties, and stakes in limited partnerships. Portfolio income is income from dividends, interest, and capital gains from stock sales.

A passive loss is a financial loss within an investment in any trade or business enterprise in which the investor is not a material participant. Passive losses can stem from investments in rental properties, business partnerships, or other activities in which an investor is not materially involved.

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Heron Corporation is a personal service corporation. It had $230,000 of net active income, $40,000 of...

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