J and K, Who File Jointly, Started a Small Business

question 7

Multiple Choice

J and K, who file jointly, started a small business in 1985 by investing $225,000 cash.Their basis in their corporate stock remained at $225,000 until it became worthless during the current year.They have no other gains and losses for the year.How much may they deduct and what is the character of their loss?

• A)$50,000 ordinary loss, $3,000 capital loss deduction, $172,000 long-term capital loss carryover
• B)$100,000 ordinary loss and no capital loss deduction or carryover
• C)$100,000 ordinary loss, $3,000 capital loss deduction, and $122,000 long-term capital loss carryover
• D)$225,000 ordinary loss

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Definitions:

Uncertain Tax Positions

Tax positions taken in a filed tax return that may be challenged by the taxation authorities and which may have to be adjusted in the future.

Technical Merits

The inherent value or quality of a project, system, or process based on its technical specifications, efficiency, and effectiveness.

Statutory Rate

The legally enforced tax rate set by government legislation.

Differential Tax Rates

Different rates of taxation applied to different levels of income, types of taxpayers, or types of activities, to achieve various economic or social objectives.