Norma formed Hyacinth Enterprises,a proprietorship,in 2008.In its first year,Hyacinth had operating income of $150,000 and operating expenses of $100,000.In addition,Hyacinth had a long-term capital loss of $4,000.Norma,the proprietor of Hyacinth Enterprises,withdrew $25,000 from Hyacinth during the year.Assuming Norma has no other capital gains or losses,how does this information affect her taxable income for 2008?
A)Increases Norma's taxable income by $25,000.
B)Increases Norma's taxable income by $21,000 ($25,000 income - $4,000 long-term capital loss).
C)Increases Norma's taxable income by $47,000 ($50,000 income - $3,000 long-term capital loss).
D)Increases Norma's taxable income by $50,000.
E)None of the above.

Question

Quizplus · Accepted Answer

A proprietorship is not a separate taxable entity.As a proprietor,Norma reports profit or loss from Hyacinth on her individual return.Norma's taxable income for 2008 will be increased by $47,000 ($150,000 - $100,000 = $50,000 net profit - $3,000 long-term capital loss limit).The $25,000 she withdrew from Hyacinth has no effect on her taxable income.

Norma Formed Hyacinth Enterprises,a Proprietorship,in 2008