ABC Corporation has outstanding shares of common stock of which A, B, C and D each...
ABC Corporation has outstanding shares of common stock of which A, B, C and D each owns 100 shares. In on transaction, ABC Corporation redeems 55 shares from A, 25 shares from B, and 20 shares from C. The earnings and profits of ABC Corporation was $100,000 on the date of redemption. The redemption price was $100 per share. The shareholders purchased their stock more than one year ago for $80 per share.
What is the tax effect to C of the redemption?
Homework Answers
In the current scenario, C holds 100 shares out of which 20 are being redeemed . the share were purchased at a price $80 per share and now on redemption $100 per share would be received.
TAX EFFECT
So, capital gains chargeable to tax would be $400 [20 x (100-80)] for C.
As C is an Individual and Income is from Long term capital asset ( as held for more than 1 year) and total amount is less than $39375( i.e. $400) No tax will be payable by him.
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