Logan, a 50-percent shareholder in Military Gear Inc. (MG), is comparing the tax consequences of losses from C corporations with losses from S corporations. Assume MG has a $111,000 tax loss for the year, Logan's tax basis in his MG stock was $155,500 at the beginning of the year, and he received $80,500 ordinary income from other sources during the year. Assuming Logan's marginal tax rate is 24 percent, how much more tax will Logan pay currently if MG is a C corporation compared to the tax he would pay if it were an S corporation

$10,680

Explanation:

Computation of the amount of how much more tax that Logan will pay currently if MG is a C corporation compared to the tax he would pay if it were an S corporation

Logan would pay the amount of $19,320 in taxes if Military Gear Inc. is a C corporation ($80,500 ×24%).

In a situation were it is an S corporation, that means he would pay the amount of $8,640 in taxes (($80,500 - $44,500) × 24%).

Therefore he has to pay the amount of $10,680 more in his taxes which is ($19,320 - $8,640) currently if Military Gear, Inc.

Logan's tax basis $155,500 -$111,000 tax loss for the year =$44,500

Therefore the amount of money that Logan will tend to pay MG is a C corporation compared to the tax he would pay if it were an S corporation would be $10,680.

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