Question

Ted owns 20% of Genco (a C corporation) that had taxable income of $100,000 and paid a total of $50,000 in dividends to its shareholders. Ted also owns 10% of Subco (an S corporation) that had $100,000 of taxable income and distributed a total of $60,000 to its shareholders. How much must Ted include in his gross income as a result of being a shareholder in these two corporations?

Answer 1

Answer:

$20,000

Explanation:

Data provided in the question:

Percentage of Genco owned by Ted = 20%

Taxable income of Genco = $100,000

Dividend paid by Genco = $50,000

Percentage of Subco owned by Ted = 10%

Taxable income of Subco = $100,000

Dividend paid by Subco = $60,000

Now,

since the Genco is a C corporation

Income from Genco = 20% of Dividend paid by Genco

= 0.20 × $50,000

= $10,000

and Subco is

Since Subco is a Sc corporation

The income of Ted from Subco = 10% of Taxable income of Subco

= 0.10 × $100,000

= $10,000

Therefore,

Gross income of Ted = $10,000 + $10,000

= $20,000