RGD Corporation was a C corporation from its inception in 2015 through 2018. However, it elected S corporation status effective January 1, 2019. RGD had $50,000 of earnings and profits at the end of 2018. RGD reported the following information for its 2019 tax year.DescriptionAmountConsulting revenue$130,000 Salary to owners (50,000)Employee wages (40,000)Depreciation expense (8,000)Interest income 50,000 Dividend income 40,000 Overall net income$122,000 What amount of excess net passive income tax is RGD liable for in 2019? (Round your answer for excess net passive income to the nearest thousand.)
What will be an ideal response?
$7,350 (21% × $35,000). Passive investment income is $90,000 ($50,000 interest income + $40,000 dividend income). Gross receipts of $220,000 ($130,000 consulting revenue + $50,000 interest income + $40,000 dividend income). Expenses in producing passive investment income are $0.
Excess net passive income is $35,000, computed as $90,000 × [$90,000 ? (25% × $220,000)]/$90,000.
Consequently, the excess net passive income tax is $7,350 = 21% × $35,000.
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