RGD Corporation Was a C Corporation from Its Inception in 2011

question 28

Essay

RGD Corporation was a C corporation from its inception in 2011 through 2015. However, it elected S corporation status effective January 1, 2016. RGD had $50,000 of earnings and profits at the end of 2015. RGD reported the following information for its 2016 tax year. $$\begin{array} { | l | r | } \hline \text { Description } & \text { Amount } \\\hline \text { Consulting revenue } & \$ 130,000 \\\hline \text { Salary to owners } & ( 50,000 ) \\\hline \text { Employee wages } & ( 40,000 ) \\\hline \text { Depreciation expense } & ( 8,000 ) \\\hline \text { Interest income } & 50,000 \\\hline \text { Dividend income } & 40,000 \\\hline \text { Overall net income } & \$ 122,000 \\\hline\end{array}$$ What amount of excess net passive income tax is RGD liable for in 2016? (Round your answer for excess net passive income to the nearest thousand)

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Definitions:

Diminishing Returns

An economic principle stating that as investment in a particular area increases, the rate of profit from that investment, after a certain point, begins to decrease.

Marginal Cost

The change in total production cost that arises when the quantity produced is incremented by one unit.

Fixed Cost

Expenses that do not change in proportion to the activity of a business, such as rent, salaries, and loan payments.

Variable

A variable is an element, feature, or factor that is liable to vary or change; in mathematics and statistics, it's a quantity that can assume any of a set of values.