Question

Logan, a 50-percent shareholder in Military Gear Incorporated (MG), is comparing the tax consequences of losses from C corporations with losses from S corporations. Assume MG has a $107,000 tax loss for the year, Logan's tax basis in his MG stock was $153,500 at the beginning of the year, and he received $78,500 ordinary income from other sources during the year. Assuming Logan's marginal tax rate is 24 percent, how much more tax will Logan pay currently if MG is a C corporation compared to the tax he would pay if it were an S corporation

Answer 1

$11,170

Step-by-step explanation:

Calculation for how much more tax will Logan pay currently if MG is a C corporation compared to the tax he would pay if it were an S corporation

First step is to calculate the payment If Military Gear Inc is a C corporation,

Payment= $78,500 × 24%

Payment= $18,850

Second step First step is to calculate the payment , if Military Gear Inc is a S corporation,

Payment = ($78,500 −$46,500) × 24%

Payment= $7,680

The net effect would be

net effect= $159,000 - $107,000

net effect= $46,500

Now let calculate how much more tax will Logan pay currently if MG

Tax = 18,850 - $7,680

Tax= $11,170