Week 6 hmwrk tax management

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Week 5 : C Corporations Concluded - Homework ES Page 1 1. (TCO E) For federal tax purposes, royalty income that is not derived in the ordinary course of a business is classified as: (Points : 5) portfolio income. answer active income. passive income. None of the above 2. (TCO F) When comparing corporate and individual taxation, the following statement is true: (Points : 5) Unlike individual taxpayer, corporate may not have a long-term capital loss carryforward. Both types of taxpayers have percentage limitations on the charitable contribution deduction, coupled with a carryover of the excess contribution. All taxpayers may carry net operating losses back two years, forward 20 years.…show more content…
10. (TCO G) Briefly (1) define and (2) discuss the purpose and impact of each of the following: a. at-risk rules b. suspended passive activity losses c. material participation (Points : 18) a. at-risk rules Definition: Losses from a business operation are limited to the amount of money you can actually lose in the business. You are subject to at-risk rules if you are filing Schedules C, E, or F. Tax laws limiting the amount of losses an investor (usually a limited partner) can claim. Only the amount actually at risk can be deducted. b. suspended passive activity losses Definition: A capital loss that cannot be realized in a given tax year due to passive activity limitations. These losses are therefore "suspended" until they can be netted against passive income in a future tax year. Suspended losses are incurred as a result of passive activities, and can only be carried forward. Suspended losses that are incurred as a result of the disposition of a passive interest are subject to an annual capital loss limit. Suspended losses can, however, be used to offset income realized in a later year that is generated from material participation in the activity that initially produced the loss. For example, if a taxpayer incurs a $5,000 suspended loss in one year from a passive activity and then materially participates in the activity the following year and earns $10,000, then the suspended loss may be applied against $5,000 of the

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