Charlotte Corporation is a cash basis taxpayer and reported the following income
ID: 2445828 • Letter: C
Question
Charlotte Corporation is a cash basis taxpayer and reported the following income and expenses in 2014.
Services Income $550,000
Wages to employees 100,000
Tax Exempt Interest Income 25,000
Short-Term Loss on Stock Sale (30,000)
Federal Taxes Paid 150,000
Penalties 1,000
Charlotte also purchased $100,000 of furniture on 1/1/2014 but did not elect bonus depreciation or 179 expense. The property has a 10 year ACRS life. Determine Charlotte’s taxable income and current E&P.
Explanation / Answer
Charlotte's Income :
service income = 550000
less: salaries = 100000
less: Federal tax = 150000
less: penalties = 1000
less: depreciation ($ 100000 / 10 year) = 10000
less: short term loss = 30000
Taxable Income = $259000
Current E & P = taxable income - federal tax - penalties + Tax Exempt Interest Income
= $259000 - $ 150,000 - $1,000 + $25000
= $133000