Question

Problem 3-37 (LO. 1, 3) Jonathan owns 100% of Lemon Company (a calendar year entity). In the current year, Lemon recognizes a long-term capital gain of $70,000 and no other income (or loss). Jonathan is in the 37% tax bracket (and 20% tax bracket for any net capital gains or dividends) and has no recognized capital gains (or losses) before considering his ownership interest in Lemon Company. What is the income tax result from the $70,000 if Lemon is (a) an LLC and (b) a C corporation? a. If Lemon is an LLC: Assuming no election has been filed under the check-the-box Regulations, the tax on the $70,000 long-term capital gain is $ 10,500 X. Feedback Check My Work Capital gains and losses result from the taxable sales or exchanges of capital assets. Whether these gains and losses are long-term or short-term depends upon the holding period of the assets sold or exchanged. Each year, a taxpayer's short-term gains and losses are combined, and long- term gains and losses are combined. The result is a net short-term capital gain or loss and a net long-term capital gain or loss. b. If Lemon is a C corporation: The tax on the $70,000 long-term capital gain is $ 12,500 x

Answer 1

a) Long term Capital Gain - $14000 ($70000 * 20%)

b) Long term Capital Gain - $14700 ($70000 * 21%)