Which of the following is true regarding taxation of losses of a C corporation?
A) The operating loss is passed on to shareholders, but the corporation itself does not realize any benefit.
B) The operating loss is recognized at the corporate level, and shareholders also receive a tax benefit.
C) The operating loss will be recognized at the corporate level, shareholders receive no tax benefit, and the corporation receives no benefit until it has operating income against which its prior losses can be deducted.
D) The operating loss is not recognized at the corporate level; and although shareholders may receive a deduction, they must wait until they receive some amount of profit from the corporation at which point they can deduct up to 10% of the losses per year.

Question

Quizplus · Accepted Answer

The operating loss will be recognized at the corporate level, shareholders receive no tax benefit, and the corporation receives no benefit until it has operating income against which its prior losses can be deducted. C corporations are taxed as separate entities and they can only use their losses to offset future income. Shareholders do not receive any tax benefit for the losses incurred by the corporation. The losses can only be carried forward and used to offset future profits, subject to certain limitations. Once the corporation generates sufficient income, it can use the losses to reduce its tax liability.

Which of the Following Is True Regarding Taxation of Losses