Ms. Watts owns stock in two S corporations, MKP Corporation and Reynolds Inc. This year, Ms. Watts had the following income and loss items. If Ms. Watts materially participates in the business of both corporations, compute her AGI.

Question

Ms. Watts owns stock in two S corporations, MKP Corporation and Reynolds Inc. This year, Ms. Watts had the following income and loss items.  If Ms. Watts materially participates in the business of both corporations, compute her AGI.

Quizplus · Accepted Answer

To compute Ms. Watts' AGI, we need to first calculate her income and losses from both S corporations.

From MKP Corporation: 
- Income: $105,000 
- Loss: ($40,000)

From Reynolds Inc: 
- Income: $63,000 
- Loss: ($10,000)

Since Ms. Watts materially participates in the business of both corporations, she can claim the losses from each company against the corresponding income.

Therefore, her net income from MKP Corporation is $65,000 ($105,000 - $40,000) 
And her net income from Reynolds Inc is $53,000 ($63,000 - $10,000)

Her total income for the year is $118,000 ($65,000 + $53,000)

Adding to this her wages/salary of $9,700, her adjusted gross income (AGI) is $127,700 (Option C)

Ms Watts Owns Stock in Two S Corporations, MKP Corporation