Ms. Watts owns stock in two S corporations, MKP Corporation and Reynolds Inc. This year, Ms. Watts had the following income and loss items. $\begin{array}{llr}
\text {Salary } &\$ 113,700\
\text { Business income from MKP } & \$42,000 \
\text { Business loss from Reynolds } &\$(28,000)
\end{array}$
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. $\begin{array}{llr}
  \text {Salary  } &\$ 113,700\
 \text { Business income from MKP } & \$42,000 \
 \text { Business loss from Reynolds } &\$(28,000)
\end{array}$
 If Ms. Watts materially participates in the business of both corporations, compute her AGI.

Quizplus · Accepted Answer

- Net income from MKP Corp: $100,000.
- Net loss from Reynolds Inc: ($13,300).
- This results in total net income of $86,700.
- However, since Ms. Watts materially participates in the business of both corporations, she can deduct up to $25,000 of the Reynolds Inc net loss from her income.
- Therefore, her AGI is $86,700 - $13,300 + $25,000 = $98,400 from S corporations.
- Adding her other income of $29,300 results in a total AGI of $127,700.

Ms Watts Owns Stock in Two S Corporations, MKP Corporation