Question

Danni is a single 30 percent owner of Kolt (a business entity). In the current year, Kolt reported a $1,000,000 business loss. Answer the following questions associated with each of the following alternative scenarios: (Leave no answer blank. Enter zero if applicable.) Problem 15-55 Part a a. Kolt is organized as a C corporation and Danni works 20 hours a week as an employee for Kolt. Danni has a $200,000 basis in her Kolt stock. How much of Kolt’s loss is Danni allowed to deduct this year against her other income?

Answer 1

In the scenario where Kolt is a C corporation and Danni is a 30 percent owner, she is not allowed to deduct any of Kolt's business losses against her personal income regardless of her stock basis or hours worked.

Step-by-step explanation:

If Danni is a 30 percent owner of Kolt, which is organized as a C corporation, and it reported a $1,000,000 business loss, Danni will not be able to deduct any portion of this loss against her other income. This is due to the fact that C corporations are separate tax entities, and their losses are not passed through to their shareholders. Instead, the corporation itself carries the loss forward or back to offset against its own future or past taxable income. Regardless of Danni's basis in her Kolt stock or the number of hours she works for the company, these factors do not affect her ability to deduct Kolt's loss on her individual tax return.