Deductions in computing Taxable Income Problem

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Fryvangnaaa

Business Finance

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G. NONCORPORATE EXCESS BUSINESS LOSSES Internal Revenue Code: Section 461(1)(1)-(3), (6). 544 DEDUCTIONS IN COMPUTING TAXABLE INCOME PART 4 After considering all of the above limitations, in 2017 Congress added an additional statutory limitation for any “excess business loss. Under the limitation, a noncorporate taxpayer combines all of the taxpayer's trade or business income and gain and all such deductions. If the combined deductions exceed the income and gain by more than $250,000 (or $500,000 in the case of a joint return), the excess loss is not deductible in the current year, and the excess is carried over and treated as a net operating loss in the subsequent year. The $250,000 and $500,000 figures are adjusted for inflation after 2018. To illustrate the rule, assume a single taxpayer operates a business in which she materially participates and the business has $700,000 of gross the year and $1 million of deductible expenses. The taxpayer has a $300,000 total loss and a $50,000 excess business loss ($300,000 less $250,000). The taxpayer must treat the $50,000 excess business loss as a net operating loss in the next year. income for PROBLEM 1. Win owns two separate unincorporated businesses and files a joint return for the year with his spouse. Win has a gaming business that has $600,000 of income and $200,000 of deductions for the year, but his restaurant business has $500,000 of income and $1.5 million of deductions for the year. (a) To what extent may Win deduct his losses? (b) What happens to any nondeductible losses in (a), above? (c) What result in (a), above, if Win does not materially participate in the restaurant business? (d) What result in (a), above, if in addition Win owns a real estate business that has $300,000 of income and $200,000 of deductions for the year?
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Running head: TAXATION

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TAXATION
Name:
Institution affiliation:
Date:

TAXATION

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a) To what extent Win deduct his losses
For federal income taxes, Win is eligible for taxation on his total income, and that
involves adding up negatives and positives. For example, the gaming business made a net
income of $400000 for the year while the restaurant business made a net loss of $1000000 during
the year (Grace, 2018). The total income is thus a net operating loss of $600000 which will be
sued to reduce the rate of tax payments in the future. Win will not pay tax in the current year. A
tentative refund involving the tax being moved to the previous year tax to the period in which
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