Question

Until the end of year 0, Magic Carpets (MC) was a C corporation with a calendar year. At the beginning of year 1 it elected to be taxed as an S corporation. MC uses the LIFO method to value its inventory. At the end of year 0, under the LIFO method, its inventory of rugs was valued at $160,000. Under the FIFO method, the rugs would have been valued at $180,000. How much LIFO recapture tax must MC pay? Magic Carpets’ regular taxable income in year 0 was $1,000,000.

Answer 1

Answer: * LIFO recapture tax must me pay : 1150 recapture tax = (FIFO inventory value - LIFO inventory volue] me's marginal -tax rate. Where, FIFO inventory value = $180000 LIFO inventory value = $160,000 NOW substitute values in Eng LIFO recapture far = ($180,000 – $100,000)xma's marginal tax rate = $80,000 xmely marginal tax wité, Thus, .. out of $20,000, first $10,000 will be taxed at ast and remaining $10,000 cwill be taxed at 346%..

Hence, total LIFO recapteeve fax will be = $ 2,500 + $ 3,400 = $5,900 which will be payable in 4 equal annual installiments - 5.900 = $1,475 and due date for making first installment is 15th march, year! son o's total lifo ne capteeve tax is $5,9001