Question

In the current year, Werbung Corporation (a calendar year C corporation) had operating income of $430,000 and operating expenses of $355,000. In addition, Werbung had a long-term capital gain of $25,000, a long-term capital loss of $2,000 and a short-term capital loss of $30,000.a. Compute Werbung's taxable income and tax for the year.Taxable income: $Income tax: $b. Assume the same facts except that Werbung's long-term capital gain was $50,000. Compute Werbung's taxable income and tax for the year.Taxable income: $Income tax: $

Answer 1

a. Compute Werbung's taxable income and tax for the year.

taxable income = $430,000 (revenue) - $355,000 (operating expenses) + $25,000 (long term capital gains) - $2,000 (long term capital loss) - $30,000 (short term capital loss) = $68,000

Corporations must include all their income and gains/losses under operating income, only individuals (including self employed, sole proprietorships and partnerships) can segregate between regular income and capital gains or losses.

b. Assume the same facts except that Werbung's long-term capital gain was $50,000.

taxable income = $430,000 (revenue) - $355,000 (operating expenses) + $50,000 (long term capital gains) - $2,000 (long term capital loss) - $30,000 (short term capital loss) = $93,000