Question

Kinney, Inc., an electing S corporation, holds $5,000 of AEP and $9,000 in AAA at the beginning of the calendar tax year. Kinney has two shareholders, Eric and Maria, each of whom owns 500 shares of Kinney's stock. Kinney's taxable income is $6,000 for the year. Kinney distributes $6,000 to each shareholder on February 1, and it distributes another $3,000 to each shareholder on September 1. How is Eric taxed on the distribution?(A) $500 dividend income.(B) $1,000 dividend income.(C) $1,500 dividend income.(D) $3,000 dividend income.(E) None of the above.

Answer 1

Answer:

c)

Explanation:

$1,500 dividend income. Wich is any distribution of a company earnings to shareholders from stocks or mutual fund you own.  The tax treatment of dividend income depends on whether the income meets the definition of a quialified dividend.   It is held in a retirement account, like IRA