Question

Janice is the sole owner of Catbird Company. In the current year, Catbird had operating income of $100,000, a long-term capital gain of $15,000, and a charitable contribution of $5,000. Janice withdrew $70,000 of profit from Catbird. How should Janice report this information on her individual tax return if Catbird Company is: An LLC? An S corporation? A C corporation?

Answer 1

If Catbird Company is an LLC or an S corporation, Janice will report her share of the operating income and long-term capital gain on her individual tax return. If Catbird Company is a C corporation, Janice will not report the operating income or long-term capital gain, but will report her withdrawal of profit as dividend income.

Step-by-step explanation:

If Catbird Company is an LLC, Janice will report the operating income of $100,000 and the long-term capital gain of $15,000 on her individual tax return. However, the $5,000 charitable contribution will not be reported on her individual tax return since it is made by the company. Janice's withdrawal of $70,000 of profit will not be directly reported on her individual tax return.

If Catbird Company is an S corporation, Janice will report her share of the operating income and long-term capital gain on her individual tax return. Janice will receive a Schedule K-1 from the S corporation, which will provide her with the necessary information to report on her tax return. Similar to the LLC structure, the charitable contribution made by the company will not be reported on Janice's individual tax return. Janice's withdrawal of $70,000 of profit will also not be directly reported on her individual tax return.

If Catbird Company is a C corporation, Janice will not report the operating income or long-term capital gain on her individual tax return. C corporations are subject to corporate income tax and file their own separate tax return. Janice's withdrawal of $70,000 of profit will be considered a dividend distribution and will be reported on her individual tax return as dividend income.

Answer 2

A. LLC

Operating income $100,000

Long-term Capital Gain $15,000

Charitable contribution $5,000

No Effect $70,000

b. S corporation

Operating income $100,000

Long-term Capital Gain $15,000

Charitable contribution $5,000

No Effect $70,000

C. C corporation

Taxable income $110,000

Dividend income $70,000

Step-by-step explanation:

a. An LLC

Based on the information given She will report the OPERATING INCOME of the amount of $100,000 Schedule C.

LONG-TERM CAPITAL GAIN Schedule D of the amount of $15,000.

Thirdly in a situation where she itemizes, the amount of $5,000 which represent charitable contribution (Schedule A) will be on her tax return

Lastly the amount of $70,000 which represent the amount withdrew from profit would have no effect on her individual tax return.

b. S corporation

Based on the information given she will report the OPERATING INCOME of the amount of $100,000 Schedule E.

LONG-TERM CAPITAL GAIN Schedule D of the amount of $15,000.

Thirdly in a situation where she itemizes, the amount of $5,000 which represent CHARITABLE CONTRIBUTION (Schedule A) will be on her tax return

Lastly the amount of $70,000 which represent the amount withdrew from profit would have no effect on her individual tax return.

c. C corporation

Based on the information given the TAXABLE INCOME of the amount of $110,000 calculated as ($100,000+$15,000-$5,000) will be reported by Catbird Company on FORM 1120 while Janice on the other hand will have to report DIVIDEND INCOME Schedule B of the amount of $70,000 on her tax return.