Question

A sole proprietor wants to incorporate and has requested a projection of the first-year tax results as a C corporation and as an S corporation. Taxable income from ordinary operations is projected to be $100,000. The company expects to make a $20,000 charitable contribution and projects a long-term capital loss on stock of $7,000.
Which of the following projections is correct?
a. C corporation, $90,000 taxable income;
S corporation, $80,000 ordinary business income; long-term capital loss is separately stated.
b. C corporation, $90,000 taxable income;
S corporation, $100,000 ordinary business income; remaining items are separately stated.
c. C corporation, $80,000 taxable income;
S corporation, $100,000 ordinary business income; remaining items are separately stated.
d. C corporation, $73,000 taxable income;
S corporation, $80,000 ordinary business income; long-term capital loss is separately stated.

Answer 1

Answer:

The answer is: B) C corporation, $90,000 taxable income;  S corporation, $100,000 ordinary business income; remaining items are separately stated.

Explanation:

Contributions to charity made by an S Corporation are not tax deductible anymore since the changes made by the Tax Cuts and Jobs Act of 2017.  

A C Corporation can deduct charitable contributions that amount up to 10% of its taxable income. In this case, the taxable income was $100,000, so 10% equals $10,000.