Beth and Bob are married entrepreneurs. Beth has a start-up sole proprietorship in which she works long hours. This year the business generated $500,000 of revenues and $800,000 of deductible business expenses. Bob is a partner in a new partnership, also working long hours. His share of the partnership loss for the year is $275,000. Fortunately, they both have trust funds so they are receiving $700,000 of taxable interest income and dividends in 2021. Due to this year's results, Beth and Bob will have an NOL carryover of a.$0. b.$575,000. c.$325,000. d.$51,000.

As per IRS NOL Non- operating losses can be carry forward with an amount of 80% of the taxable income for an unlimited period. For calculating the NOL the aggregate losses should be deducted from the aggregate income. And the deduction will be subject to excess loss from all activities that are greater than the threshold limit i.e $250,000 for single filers and $500,000 for married joint filers Given Beth and Bob are married entrepreneurs. Beth has $500,000 revenues and $ 800,000 revenues. Bob has loss of $275,000 this year. In 2021 they had interest and dividend income of $700,000.Calculation Of NOL: NOL = Total losses - Aggregate Revenues = $800,000 - $275,000 = $575,000 - $500,000 (threshold limit for joint filers) NOL = $75000 Calculation of NOL carry forward: According to IRS it can be carry forward to the next year with an amount of 80% of Taxable income In the given case the taxable income is $700,000 $700,000 * 80% = $560,000 So they can carry forward the loss upto $ 560,000 But the NOL is only $75,000 it is limited to $75,000 only The correct option is not given in the question. Note: Here I assumed this year refers to 2020 and the next year is 2021. It is assumed they file joint returns

Answered: Beth and Bob are married entrepreneurs.…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Beth and Bob are married entrepreneurs. Beth has a start-up sole proprietorship in which she works long hours. This year the business generated $500,000 of revenues and $800,000 of deductible business expenses. Bob is a partner in a new partnership, also working long hours. His share of the partnership loss for the year is $275,000. Fortunately, they both have trust funds so they are receiving $700,000 of taxable interest income and dividends in 2021. Due to this year's results, Beth and Bob will have an NOL carryover of

a.

$0.

b.

$575,000.

c.

$325,000.

d.

$51,000.

Definition Definition Arrangement between two or more people whereby they agree to manage business operations and share its profits and losses in an agreed ratio. The agreement drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, and drawings of a partner.

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