Perry owns all of the stock of Sound Corporation.Perry is also the President of Sound and works full-time running Sound.During the current year,Sound has a loss of $75,000 from its operations.
i.If Sound is an S Corporation,Perry deducts the loss on his personal tax return as a deduction from AGI.II.If Sound is a regular corporation,the corporation can elect to carryforward the loss to reduce taxable income during the next 20 years.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question

Perry owns all of the stock of Sound Corporation.Perry is also the President of Sound and works full-time running Sound.During the current year,Sound has a loss of $75,000 from its operations.
i.If Sound is an S Corporation,Perry deducts the loss on his personal tax return as a deduction from AGI.II.If Sound is a regular corporation,the corporation can elect to carryforward the loss to reduce taxable income during the next 20 years.
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A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Quizplus · Accepted Answer

If Sound is an S Corporation, the loss from its operations would pass through to Perry as the owner and be reported on his personal tax return, but as an S Corporation, Sound cannot carry forward any losses. If Sound is a regular corporation, it can carry forward the loss for up to 20 years, but Perry would not be able to deduct the loss on his personal tax return. Therefore, statement II is correct and statement I is incorrect.

Perry Owns All of the Stock of Sound Corporation