Homework Answers
Problem 4
Assumptions
TAXPAYER is INDIVIDUAL
Net income as per book includes all items of income & Expenses.
Net Income as per book $100,000.
Federal Income Tax Expense $22,250 ( federal income tax is non deductible expense for the taxpayers.)
Life insurance proceeds is non taxable benefit $(60,000).
Tax Exempt interest is non taxable $(13,000)
Life insurance premium non deductible expense as proceeds are not taxable $5000.
No treatment for capital loss as individual can off set up to $3000 from ordinary taxable income.
Taxable income = $100,000+$22,250-$60,000-$13,000+$
5,000 = $54,250.
Note in case of corporation we have to add capital loss as copopation is not allowed to offset capital loss with ordinary income.
Problem 5
For Corporation STCG can be set off against STGL & LTCG can be set off against LTCL.
TAXABLE INCOME $150,000.
Set off process
STCG - STCL = $10,000-$15,000 = $(5000) This amount can be offset against LTCG or carry forward.
LTCG -LTCL = $ 30,000-$40,000 =$(10,000) This amount can be offset against STCG or carry forward.
In given case we have carryforward the above amount. The amount can be carry back for 3 years and carry forward for 5 years.
Taxable income will be same $150,000.
*STCG short term capital gain.
*STCL short term capital loss.
*LTCG long term capital gain.
*LTCL long term capital loss.
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