My question is would Horace's tax liability on the $5000 gain on the sale of stock as ordinary income and subject to 37% tax or a long-term capital gain and taxed at 20%? Information Horace owns stock in Kumquat, Inc. Since the stock of Kumquat, a C-corporation, is not traded on an exchange, Kumquat must redeem the stock in order for shareholders to “sell” their stock. Kumquat has $1,000,000 in E&P. In 2022, Horace would like to redeem 700 of his 800 shares of stock. Thus, after the stock is redeemed, he would own 100 shares of stock. Kumquat has agreed to buy-back 700 shares of Horace’s stock for $40,000. Horace’s paid $50/share for his stock in 2000. Before this redemption, the stock in Kumquat is owned as follows: Horace 800 shares Elaine (Horace’s sister) 2,200 shares Clyde (Horace’s son) 600 shares Plum Partnership (Horace has a 10% interest) 800 shares Grape Corporation (Horace owns 60%) 800 shares Horace is in the 37% tax bracket.
My question is would Horace's tax liability on the $5000 gain on the sale of stock as ordinary income and subject to 37% tax or a long-term capital gain and taxed at 20%? Information Horace owns stock in Kumquat, Inc. Since the stock of Kumquat, a C-corporation, is not traded on an exchange, Kumquat must redeem the stock in order for shareholders to “sell” their stock. Kumquat has $1,000,000 in E&P. In 2022, Horace would like to redeem 700 of his 800 shares of stock. Thus, after the stock is redeemed, he would own 100 shares of stock. Kumquat has agreed to buy-back 700 shares of Horace’s stock for $40,000. Horace’s paid $50/share for his stock in 2000. Before this redemption, the stock in Kumquat is owned as follows: Horace 800 shares Elaine (Horace’s sister) 2,200 shares Clyde (Horace’s son) 600 shares Plum Partnership (Horace has a 10% interest) 800 shares Grape Corporation (Horace owns 60%) 800 shares Horace is in the 37% tax bracket.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
My question is would Horace's tax liability on the $5000 gain on the sale of stock as ordinary income and subject to 37% tax or a long-term
Information
Horace owns stock in Kumquat, Inc. Since the stock of Kumquat, a C-corporation, is not traded on an exchange, Kumquat must redeem the stock in order for shareholders to “sell” their stock. Kumquat has $1,000,000 in E&P.
In 2022, Horace would like to redeem 700 of his 800 shares of stock. Thus, after the stock is redeemed, he would own 100 shares of stock. Kumquat has agreed to buy-back 700 shares of Horace’s stock for $40,000. Horace’s paid $50/share for his stock in 2000.
Before this redemption, the stock in Kumquat is owned as follows:
- Horace 800 shares
- Elaine (Horace’s sister) 2,200 shares
- Clyde (Horace’s son) 600 shares
- Plum
Partnership (Horace has a 10% interest) 800 shares - Grape Corporation (Horace owns 60%) 800 shares
Horace is in the 37% tax bracket.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education