Manuel and Fernando own and operate an electronics store, Electronica, as an S corporation. Manuel owns 70%, and Fernando owns 30%. For the current year, the store reports the following:
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Sales revenue
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$1,000,000
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Long-term capital gains
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8,000
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Business expenses
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(840,000)
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Charitable contributions
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(9,000)
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Non-deductible expenses
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(4,000)
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Short-term capital losses
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(15,000)
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Operating income
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$ 140,000
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a. How must Electronica report its results to Manuel and Fernando for tax purposes?
b. In addition to the income and deductions from Electronica, Manuel has interest and dividend income of $3,500, long-term capital gains of $1,500, and other item- ized deductions of $14,500. He is married and has two children. What is his tax- able income and his income tax liability?