Chapter 22 S Corporations

61. [LO4] {Research} In the past several years, Shakira had loaned money to Shakira Inc. (an S corporation) to help the corporation keep afloat in a downturn. Her stock basis in the S corporation is now zero, and she had deducted $40,000 in losses that reduced her debt basis from $100,000 to $60,000. Things appear to be turning around this year, and Shakira Inc. repaid Shakira $20,000 of the $100,000 outstanding loan. What is Shakira’s income, if any, on the partial loan repayment?

62. [LO4] Adam Fleeman, a skilled carpenter, started a home improvement business with Tom Collins, a master plumber. Adam and Tom are concerned about the payroll taxes they will have to pay. Assume they form an S corporation, and each earns a salary of $80,000 from the corporation; in addition, they expect their share of business profits to be $60,000 each. How much Social Security tax and Medicare tax (or self-employment tax) will Adam, Tom, and their corporation have to pay on their salary and profits?

63. [LO4] {Planning} Using the facts in problem 62, could Adam and Tom lower their payroll tax exposure if they operated their business as a partnership? Why or why not?

64. [LO4]) This year, Justin B.’s share of S corporation income includes $4,000 of interest income, $5,000 of dividend income, and $40,000 of net income from the corporation’s professional service business activity.

A. Assume that Justin B. materially participates in the S corporation. How much of his S corporation income is potentially subject to the Net Investment Income tax?

B. Assume that Justin B. does not materially participate in the S corporation. How much of his S corporation income is potentially subject to the Net Investment Income tax?

65. [LO4] Friends Jackie (0.5 percent owner), Jermaine (1 percent owner), Marlon (2 percent owner), Michael (86 percent owner), and Tito (10.5 percent owner) are shareholders in Jackson 5 Inc. (an S corporation). As employees of the company, they each receive health insurance ($10,000 per year benefit), dental insurance ($2,000 per year benefit), and free access to a workout facility located at company headquarters ($500 per year benefit). What are the tax consequences of these benefits for each shareholder and for Jackson 5 Inc.?