Debra, a single taxpayer, owns 100% of Harmony Corporation, an S corporation. She has a $40,000 stock basis for her investment on January 1 of the current year (Year 1). During the first 11 months of Year 1, Harmony reports an ordinary loss of $75,000. The corporation expects an additional $8,000 loss for December. Debra earns $290,000 of ordinary income from her other activities in Year 1. She expects her other income to decline to $135,000 in Year 2 and continue at that level in future years. The corporation expects Year 2 losses to be only $8,000. Harmony projects a $50,000 profit for Year 3 and each of the subsequent four years. Read the requirement. (Click the icon to view marginal tax rate data for a single taxpayer.) What advice can you offer Debra about using her Harmony losses and retaining S corporation status in future years? Additional capital contributions of made in Year 1 would permit Debra to deduct the entire loss in Year 1 at a marginal tax rate. An additional capital contribution of is needed in Year 2 to enable the loss incurred in that year to be deductible at a marginal tax rate. What advice can you offer Debra about using her Harmony losses and retaining S corporation status in future years? How would your answer change if Debra expected her income from other activities to be $65,000 in Year 1 and $290,000 in Year 2? Debra, a single taxpayer, owns 100% of Harmony Corporation, an S corporation. She has a $40,000 stock basis for her investment on January 1 of the current year (Year 1). During the first 11 months of Year 1, Harmony reports an ordinary loss of $75,000. The corporation expects an additional $8,000 loss for December. Debra earns $290,000 of ordinary income from her other activities in Year 1. She expects her other income to decline to $135,000 in Year 2 and continue at that level in future years. The corporation expects Year 2 losses to be only $8,000. Harmony projects a $50,000 profit for Year 3 and each of the subsequent four years. Read the requirement. (Click the icon to view marginal tax rate data for a single taxpayer.) What advice can you offer Debra about using her Harmony losses and retaining S corporation status in future years? Additional capital contributions of made in Year 1 would permit Debra to deduct the entire loss in Year 1 at a marginal tax rate. An additional capital contribution of is needed in Year 2 to enable the loss incurred in that year to be deductible at a marginal tax rate. What advice can you offer Debra about using her Harmony losses and retaining S corporation status in future years? How would your answer change if Debra expected her income from other activities to be $65,000 in Year 1 and $290,000 in Year 2
