Mr. Tuck and Ms. Under organized a new business as an LLC in which they own equal interests. The new business generated a $4,800 operating loss for the year.
a. If Mr. Tuck’s marginal tax rate before consideration of the LLC loss is 35 percent, compute his tax savings from the first-year LLC loss.
b. Assume that Ms. Under has no taxable income for the year. However, her taxable income last year was enough to put her into the 28 percent tax bracket. Compute her tax savings from the LLC loss.
c. Assume that Ms. Under has no taxable income for the year or for the two preceding years. Does she have any tax savings from the LLC loss? Explain briefly.