Question

In: Accounting

discuss in relation to the S-Corporations, the tax on excess net passive income.

discuss in relation to the S-Corporations, the tax on excess net passive income.

Solutions

Expert Solution

Excess net passive income is a corporate-level tax on the passive income earned by an S corporation.

If a corporation has always been an S corporation, the excess net passive income tax does not apply.

Excess net passive income tax applies to an S corporation only if:

1. The corporation has accumulated earnings and profits at the close of its tax year.

2. The corporation has passive investment income for the tax year in excess of 25% of gross receipts.

3. The corporation has excess net passive income.

The tax on excess net passive income(ENPI) is calculated as follows:

ENPI= NPI × [PII - (0.25× GR)] ÷ PII

NPI = Net Passive Income is passive investment income, reduced by directly- connected deductions.

PII = Passive investment income includes gross receipts derived from royalties, rents, dividends, interest, and annuities.

GR = Gross receipts includes amount received for sale of property, investment, and gains(but not losses) from sale of securities irrespective of date sold.


Related Solutions

Calculate Anaheim Corporation’s excess net passive income tax in each of the following alternative scenarios:
Calculate Anaheim Corporation’s excess net passive income tax in each of the following alternative scenarios: (Leave no answer blank. Enter zero if applicable.) a. Passive investment income, $100,000; expenses associated with passive investment income, $40,000; gross receipts, $120,000; taxable income if C corporation, $40,000; corporate E&P, $30,000. b. Passive investment income, $100,000; expenses associated with passive investment income, $70,000; gross receipts, $120,000; taxable income if C corporation, $1,200; corporate E&P, $30,000. c. Passive investment income, $100,000; expenses associated with passive...
22 a Assume the following S corporations and gross receipts, passive investment income, and corporate E&P....
22 a Assume the following S corporations and gross receipts, passive investment income, and corporate E&P. Will any of these corporations have its S election terminated due to excessive passive income? If so, in what year? All became S corporations at the beginning of year 1. (Leave no answer blank. Select "NA" if no effect.) a. Clarion Corp. Gross Passive Investment Corporate Earnings Year Receipts Income and Profits 1 $ 1,353,958 $ 252,500 $ 321,600 2 $ 1,230,789 $ 102,500...
"Explaining the Basics of S-Corporations" You are the lead S-Corporations tax specialist in your area. Your...
"Explaining the Basics of S-Corporations" You are the lead S-Corporations tax specialist in your area. Your client, Cathyrn, has purchased an S Corporation and needs to be versed on how this type of corporation works. Identify three operating issues (e.g. accounting period, income/loss allocation, operating/liquidating distributions, stock basis calculations, fringe benefit rules) that Cathyrn should be aware of in managing this form of business.
S&J Plumbing, Incorporated's income statement shows a net profit before tax of $468 and net sales...
S&J Plumbing, Incorporated's income statement shows a net profit before tax of $468 and net sales of $7,482 for 2010. Total assets are at $3,244. The balance sheet lists the company’s equity for fiscal year ending 2010 as $1,746. Calculate the following ratios for this company: Return on sales ratio (net profit margin) Return on assets (ROA) Return on equity (ROE) What make S&J Plumbing, Inc efficient?
Tax implications of business entities: corporations, S corporations,partnership, and LLCs. List and explain the pros and...
Tax implications of business entities: corporations, S corporations,partnership, and LLCs. List and explain the pros and cons, from a taxation sense, of operating each type of business. Explain the importance of the passive activity loss rules. Why do you think these rules were put into law?
Pop Evil, Inc.'s, net income for the most recent year was $10,131. The tax rate was...
Pop Evil, Inc.'s, net income for the most recent year was $10,131. The tax rate was 24 percent. The firm paid $3,490 in total interest expense and deducted $2,101 in depreciation expense. What was the cash coverage ratio for the year?
Ugh Inc.’s net income for the most recent year was $15,685. The tax rate was 35...
Ugh Inc.’s net income for the most recent year was $15,685. The tax rate was 35 percent. The firm paid $3,856 in total interest expense and deducted $2,535 in depreciation expense. What was the cash coverage ratio for the year?
Terrell, Inc.’s net income for the most recent year was $13,350. The tax rate was 21...
Terrell, Inc.’s net income for the most recent year was $13,350. The tax rate was 21 percent. The firm paid $3,490 in total interest expense and deducted $4,340 in depreciation expense. What was the company’s cash coverage ratio for the year?
Delectable Parsnip, Inc.’s, net income for the most recent year was $15,221. The tax rate was...
Delectable Parsnip, Inc.’s, net income for the most recent year was $15,221. The tax rate was 23 percent. The firm paid $5,010 in total interest expense and deducted $5,447 in depreciation expense. What was the company’s cash coverage ratio for the year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
S&J Plumbing, Inc.'s 2010 income statement shows a net profit before tax of $468, whereas the...
S&J Plumbing, Inc.'s 2010 income statement shows a net profit before tax of $468, whereas the balance sheet that the company's equity for the fiscal year-end 2010 is $1,746. Calculate the company's return on equity and explain whether the managers are providing a good return on the capital provided by the company’s shareholders. Diagram and explain the operating cycle of a service company.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT