Question

In the current year, Riflebird Company had operating income of $220,000, operating expenses of $175,000, and a long-term capital loss of $10,000. How do Riflebird Company and Roger, the sole owner of Riflebird, report this information on their respective Federal income tax returns for the current year under the following assumptions

Note: If an amount is zero, enter "0".a. Riflebird Company is a proprietorship (Roger did not make any withdrawals from the business). Roger reports $ ________ net operating profit and $_______ long-term capital loss on his tax return.b. Riflebird Company is a C corporation (no dividends were paid during the year). Roger reports $__________ net operating profit and $________ long-term capital loss on his tax return.

Answer 1

a. Riflebird Company is a proprietorship (Roger did not make any withdrawals from the business). Roger reports $45,000 net operating profit and $10,000 long-term capital loss on his tax return.

The IRS classifies sole proprietorships are pass through entities which are not taxed directly, instead their owners (proprietors) are taxed.

b. Riflebird Company is a C corporation (no dividends were paid during the year). Roger reports $35,000 net operating profit and $0 long-term capital loss on his tax return.

If Riflebird is classified as a corporation, then there is no such thing as capital gains or losses for corporations, all income and losses are considered operating income or losses.