Tom Garrison is a 30% member of GF&E, LLC. He purchased the interest as an investment. Although he is not currently involved in the LLC’s day-to-day operations, he plans to become more active during the current year. Assuming that GF&E is expected to report a loss in the current tax year, describe the loss limitations that apply to Tom’s share.

What actions can he take to ensure that any loss is fully deductible? Assume that the partnership is not engaged in real estate activities.

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Sonya, a calendar year individual, owns 20% of Philadelphia Cheese Treats, Inc., a C corporation that was formed on February 1, 2010. She receives a $5,000 monthly salary from the corporation, and Philadelphia Cheese Treats generates $200,000 of taxable income (after accounting for Sonya’s payments) for its tax year ending January 31, 2011.

a. How do these activities affect Sonya’s 2010 adjusted gross income?

b. Assume, instead, that Philadelphia Cheese Treats is a partnership (January 31 yearend) and that it classifies Sonya’s salary as a guaranteed payment. How do these activities affect Sonya’s 2010 and 2011 adjusted gross income?

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