An S corporation in Lawrence,Kansas has a recognized built-in gain of $110,000 and taxable income of $98,000.The company has an $8,000 NOL carryforward from a C corporation year,and a $9,000 business credit carryforward from a C corporation year.The built-in gains tax liability is:

Question

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The built-in gains tax is calculated on the lesser of the recognized built-in gain or the taxable income, reduced by any NOL carryforward. Here, the taxable income is $98,000, reduced by the $8,000 NOL carryforward, resulting in $90,000. The tax is 21% of $90,000, which is $18,900. However, the business credit carryforward of $9,000 can offset this tax, resulting in a final tax liability of $22,500.

An S Corporation in Lawrence,Kansas Has a Recognized Built-In Gain