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TB MC Qu. 04-54 Logan, a 50-percent shareholder in Military... Logan, a 50-percent shareholder in Military...

TB MC Qu. 04-54 Logan, a 50-percent shareholder in Military... Logan, a 50-percent shareholder in Military Gear Inc. (MG), is comparing the tax consequences of losses from C corporations with losses from S corporations. Assume MG has a $100,000 tax loss for the year, Logan's tax basis in his MG stock was $150,000 at the beginning of the year, and he received $75,000 ordinary income from other sources during the year. Assuming Logan's marginal tax rate is 24 percent, how much more tax will Logan pay currently if MG is a C corporation compared to the tax he would pay if it were an S corporation?

a) $0.00

b) $6,000

c) $12,000

d) $18,000

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Answer #1

answer is option (c)

Logan has to pay (75000*24%) $ 18000 of tax if it is a C corporation .

If it was S corporation it would have to pay taxes amounting to $6000 ((75000-50000)*24%).

Thus he has to pay 12000(18000-6000) more of taxes if MG if it is a C corporation

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