Problem 20-40 (lo. 3, 8) citron, a calendar year taxpayer, began business in january 2017. it had a long-term capital gain of $5,000 in 2017 and a long-term capital loss of $10,000 in 2018. for both years, citron had an operating profit in excess of $100,000. how are these capital gain and loss transactions handled for income tax purposes in the following cases? a. if citron is an individual: in 2017, $5,000 is . in 2018, $ of the $10,000 capital loss can be used to offset ordinary income. the balance of $ is carried over indefinitely to future years as . b. if citron is a c corporation: in 2017, $5,000 is . in 2018, $ can be carried back to 2017 as and completely offset the $ of gain. the unused $ is carried over to the next five years as . c. if citron is an s corporation: in 2017, the long-term capital gain of $5,000 is . in 2018, the long-term capital loss of $10,000 is .

Explanation:

A. Provision of long term capital gain as An Individual.

Long-term capital gain of $5,000 in 2017 is taxable in 2017 as a longterm capital gain @15%

And long term capital loss of $10,000 in 2018 is either sett off to the capital gain or capital loss upto $3,000 can be settoff from normal income above this limit can be carry forword for next year.

Three maximum federal income tax rates apply to most types of net long-term

capital gains income in tax year 2018:

1. 0 percent for taxpayers in the 10 percent or 15 percent bracket for ordinary income (under $73,800 for married    joint filers)

2. 15 percent for taxpayers above the 15 percent bracket but below the 39.6 percent bracket (from $73,800 to $457,600 for married joint filers)

3. 20 percent for taxpayers in the top 39.6 percent bracket ($457,600 or higher for married joint filers)

B. Provision of long term capital gain as An C corporation.

C corporation deduct capital loss upto theire capital gain.

If in any tax year apital loss exceed capital gain than it can not be deduct from other income of same year.

Therefore loss of $10,000 can be carry forward for next year.

C. Provision of long term capital gain as An S corportation.

S corporations are pass-through entities, which means that the company itself does not pay taxes on the sale of its assets. Rather, the income from the sale of its assets passes through to the shareholder, who is responsible for paying taxes.

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