On January 2, 2018, Tim Loans His S Corporation $10,000

question 110

Multiple Choice

On January 2, 2018, Tim loans his S corporation $10,000. By the end of 2018, Tim's stock basis is zero, and the basis in his note has been reduced to $8,000. During 2019, the company's operating income is $10,000. The company makes 2019 distributions to Tim of $8,000. Tim reports a(n) :

• A) $2,000 LTCG.
• B) $8,000 LTCG.
• C) Stock basis of $2,000.
• D) Loan basis of $10,000.

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Definitions:

Disposable Income

The disposable capital for households' spending and saving endeavors after income taxes.

Consumption

The process of purchasing goods and services to fulfill the needs and wants of individuals.

Average Propensity

The ratio of total consumption to total income, indicating how much income is spent rather than saved.

Save

Setting aside money or other resources for future use or in case of emergencies.