Mr. Vernon owns stock in two S corporations, Able Corporation and Benson Inc. This year, Mr. Vernon had the following income and loss items. $\begin{array}{ll}
\text { Salary } & \$ 74,000 \
\text { Business income from Able } & \$ 20,000 \
\text { Business loss from Benson } & \$(33,000)
\end{array}$
If Vernon materially participates in Able's business but not in Benson's business, compute his AGI.

Question

Mr. Vernon owns stock in two S corporations, Able Corporation and Benson Inc. This year, Mr. Vernon had the following income and loss items. $\begin{array}{ll}
\text { Salary } & \$ 74,000 \
\text { Business income from Able } & \$ 20,000 \
\text { Business loss from Benson } & \$(33,000)
\end{array}$
 If Vernon materially participates in Able's business but not in Benson's business, compute his AGI.

Quizplus · Accepted Answer

Explanation: Mr. Vernon's AGI would be calculated by adding his salary and business income from Able, and then subtracting the business loss from Benson. However, since he does not materially participate in Benson's business, the loss from Benson may be limited due to passive activity loss rules. Given the information provided and assuming the loss from Benson is fully deductible (which may not be the case in real-life scenarios without more details on passive activity loss limitations), his AGI would be calculated as follows: $74,000 (salary) + $20,000 (business income from Able) - $33,000 (business loss from Benson) = $61,000. However, without applying passive activity loss rules due to lack of detail, the straightforward calculation leads to an AGI of $61,000, which is not an option provided. Therefore, assuming all income and losses are fully considered without limitation, his AGI would be $74,000 + $20,000 = $94,000, as the loss from Benson is not factored due to the assumption of passive activity loss rules potentially limiting its immediate deductibility.

Mr Vernon Owns Stock in Two S Corporations, Able Corporation