Question

Bjorn owns a 60% interest in an S corporation that earned $150,000 in the current year. He also owns 60% of the stock in a C corporation that earned $150,000 during the year. The S corporation distributed $30,000 to Bjorn and the C corporation paid dividends of $30,000 to Bjorn. How much income must Bjorn report from these businesses? a.$0 income from the S corporation and $30,000 income from the C corporation. b.$90,000 income from the S corporation and $0 income from the C corporation. c.$90,000 income from the S corporation and $30,000 income from the C corporation. d.$30,000 income from the S corporation and $30,000 of dividend income from the C corporation. e.None of these choices are correct.

Answer 1

Answer:

C) $90,000 income from the S corporation and $30,000 income from the C corporation.

Explanation:

An S corporation is a type of corporation that is subject to certain restrictions (e.g. total number of shareholders) because it is taxed like a general partnership, i.e. the corporation's income is not taxed at a corporate tax rate but is taxed as shareholders' gross income. This way shareholder can avoid double taxation.

If Bjorn owns 60% of the S corporation, then he will be taxed for 60% of the corporation's income = 60% x $150,000 = $90,000

Dividends from a C corporation are also taxed as gross income = $30,000