Norma formed Hyacinth Enterprises, a proprietorship, in 2012.In its first year, Hyacinth had operating income of $400,000 and operating expenses of $240,000.In addition, Hyacinth had a long-term capital loss of $10,000.Norma, the proprietor of Hyacinth Enterprises, withdrew $75,000 from Hyacinth during the year.Assuming Norma has no other capital gains or losses, how does this information affect her taxable income for 2012?
A)Increases Norma's taxable income by $157,000 ($160,000 ordinary business income - $3,000 long-term capital loss).
B)Increases Norma's taxable income by $150,000 ($160,000 ordinary business income - $10,000 long-term capital loss).
C)Increases Norma's taxable income by $75,000.
D)Increases Norma's taxable income by $160,000.
E)None of the above.

Question

Quizplus · Accepted Answer

Norma's taxable income increases by $157,000 because the ordinary business income of $160,000 is reduced by the maximum allowable deduction for a long-term capital loss, which is $3,000.

Norma Formed Hyacinth Enterprises, a Proprietorship, in 2012