Jack and Jill are owners of UpAHill, an S Corporation. They own 25 and 75 percent, respectively. UpAHill Corporation (an S Corporation) Income Statement December 31, Year 1 and Year 2 Year 1 Year 2 $ 175,000 (60,000) (40,000) (15,000) (10,000) (7,500) 2,000 500 $ 310,000 (85,000) (50,000) (20,000) (15,000) (9,000) 2,500 1,000 Sales revenue Cost of goods sold Salary to owners Jack and Jill Employee wages Depreciation expense Miscellaneous expenses Interest income (related to business) Qualified dividend income Overall net income $ 45,000 $ 134,500 a. What amount of ordinary income and separately stated items are allocated to them for years 1 and 2 based on the information above? Assume that UpAHill Corporation has $100,000 of qualified property (unadjusted basis) in both years. Jack Jill Year 1 Year 2 Year 1 Year 2 Ordinary income $ 11,125 2$ 33,375 $ 33,375 $ 100,125 Qualified business income $ 11,125 $ 33,375 $ 33,375 $ 100,125 Dividend income $ 125 2$ 250 $ 375 $ 750 Allocated wages Unadjusted basis of qualified property $ 25,000 $ 25,000 $ 75,000 $ 75,000 %24
Jack and Jill are owners of UpAHill, an S Corporation. They own 25 and 75 percent, respectively. UpAHill Corporation (an S Corporation) Income Statement December 31, Year 1 and Year 2 Year 1 Year 2 $ 175,000 (60,000) (40,000) (15,000) (10,000) (7,500) 2,000 500 $ 310,000 (85,000) (50,000) (20,000) (15,000) (9,000) 2,500 1,000 Sales revenue Cost of goods sold Salary to owners Jack and Jill Employee wages Depreciation expense Miscellaneous expenses Interest income (related to business) Qualified dividend income Overall net income $ 45,000 $ 134,500 a. What amount of ordinary income and separately stated items are allocated to them for years 1 and 2 based on the information above? Assume that UpAHill Corporation has $100,000 of qualified property (unadjusted basis) in both years. Jack Jill Year 1 Year 2 Year 1 Year 2 Ordinary income $ 11,125 2$ 33,375 $ 33,375 $ 100,125 Qualified business income $ 11,125 $ 33,375 $ 33,375 $ 100,125 Dividend income $ 125 2$ 250 $ 375 $ 750 Allocated wages Unadjusted basis of qualified property $ 25,000 $ 25,000 $ 75,000 $ 75,000 %24
Chapter15: Taxing Business Income
Section: Chapter Questions
Problem 2DQ
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Question
Transcribed Image Text:Jack and Jill are owners of UpAHill, an S Corporation. They own 25 and 75 percent, respectively.
UpAHill Corporation (an s Corporation)
Income Statement
December 31, Year 1 and Year 2
Year 1
Year 2
$ 175,000
( 60,000)
( 40,000)
(15,000)
(10,000)
(7,500)
2,000
$ 310,000
( 85,000)
( 50,000)
(20,000)
(15,000)
(9,000)
2,500
1,000
Sales revenue
Cost of goods sold
Salary to owners Jack and Jill
Employee wages
Depreciation expense
Miscellaneous expenses
Interest income (related to business)
Qualified dividend income
500
Overall net income
$ 45,000
$ 134,500
a. What amount of ordinary income and separately stated items are allocated to them for years 1 and 2 based on the information
above? Assume that UpAHill Corporation has $100,000 of qualified property (unadjusted basis) in both years.
Jack
Jill
Year 1
Year 2
Year 1
Year 2
Ordinary income
$
11,125 $
33,375 $
33,375
$
100,125
Qualified business income
11,125 $
33,375 $
33,375 $
100,125
Dividend income
125
$
250
$
375
750
Allocated wages
Unadjusted basis of qualified property
$
25,000 $
25,000 $
75,000
$
75,000
24
Expert Solution
Ordinary income:
Ordinary income is a term used in taxation to refer to any regular or routine income that an individual or business receives in the form of wages, salaries, commissions, or profits from the sale of goods and services. This type of income is typically subject to ordinary income tax rates, which are progressive and increase as the amount of income increases.
Examples of ordinary income for individuals might include:
Wages or salaries earned from employment.
Tips and bonuses received from employers.
Income earned from freelance or contract work.
Rental income from real estate.
Interest and dividends from investments.
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