Hummingbird Corporation, a closely held C corporation that is not a PSC, has $40,000 of net active income, $15,000 of portfolio income, and a $45,000 loss from a passive activity. Compute Hummingbird’s taxable income for the year.

Taxable Income for Hummingbird Corporation is $15,000

Explanation:

First what is Taxable Income

A taxable income represents a  portion of income or earnings of an individual or a corporation that is calculated as the based amount on which the individual or the organisation should pay taxes on. IT will usually be made up the gross earnings minus the allowed expenses and deductions.

Since, Hummingbird is not a Public Company but a Closed corporation it is allowed to deduct the passive loss it suffered only to the tune of the active gains it made in the period. However, investment income generated is not allowed for this deduction purpose.

Therefore, Hummingbird's Taxable Income

= Its Active Income + Portfolio Income - (only $40,000 of the passive loss, this is because active gain is $40,000)

= $40,000 + $15,000 - $40,000

Taxable income = $15,000

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