Baker Corp., a calendar year C corporation, realized taxable income of $36,000 from its regular business operations for the calendar year. In addition, Baker had the following capital gains and losses during the year.
Short-term capital gain $ 8,500
Short-term capital loss (4,000)
Long-term capital gain 1,500
Long-term capital loss (3,500)
Baker did not realize any other capital gains or losses since it began operations. What is Baker's total taxable income for the year?
a. $38,500
b. $46,000
c. $40,500
d. $42,000
Answer:A
Choice "a" is correct. Capital losses offset capital gains. If a corporation has net capital gains, they are taxed at ordinary (corporate) income tax rates. Taxable income from business operations $ 36,000
Short-term capital gain $ 8,500
Short-term capital loss (4,000)
Net short-term capital gain $ 4,500
Long-term capital gain 1,500
Long-term capital loss (3,500)
Net capital gain 2,500 Taxable income $ 38,500