Question

Potato, an individual, is a 20 percent owner of starch llc. This year, potato was allocated $45,000 of ordinary income from starch llc, $1,000 of tax-exempt interest income, and $2,000 of nondeductible expenses. Potato also received a $10,000 distribution from starch llc this year. At the beginning of the year, starch llc had outstanding debt of $100,000. At the end of the year, the entity’s outstanding debts increased to $130,000.What is Potato's taxable income from Starch LLC for the year?

a) $32,000
b) $48,000
c) $55,000
d) $44,000
e) $46,000

Answer 1

Potato's taxable income from Starch LLC for the year is calculated by subtracting nondeductible expenses ($2,000) from his share of ordinary income ($45,000), resulting in a taxable income of $43,000. Tax-exempt interest and received distribution are excluded from this calculation.

Step-by-step explanation:

The taxable income from Starch LLC for Potato, a 20 percent owner, can be calculated by considering the different types of income and expenses allocated to Potato. To determine the taxable income, we need to add Potato's share of ordinary income from Starch LLC, which is $45,000, to any other taxable income, while subtracting nondeductible expenses. However, tax-exempt interest income is not taxable, so it will not be included in the taxable income calculation, and the distribution he received does not directly affect the computation of taxable income either.

The taxable income from Starch LLC for Potato is calculated as follows:

1. Add allocated ordinary income: $45,000 (100% taxable).
2. Subtract nondeductible expenses: $2,000 (not deductible, so it increases taxable income).

Therefore, the taxable income from Starch LLC for Potato is $45,000 (ordinary income) - $2,000 (nondeductible expenses) = $43,000.

The tax-exempt interest and the distribution are not included in the taxable income calculation. Therefore, the correct answer is none of the provided options (a, b, c, d, or e), as the calculated taxable income is $43,000.