Question

Jake is the sole shareholder of an S corporation that earned 60,000 in 2015. The corporation was short on cash and therefore distributed only15,000 to Jake in 2015. How much income does Jake need to recognize from the S corporation in 2015?

1) $60,000
2) $15,000
3) $45,000
4) $0

Answer 1

Jake must recognize all $60,000 of the S corporation's income on his personal tax return for 2015, regardless of the actual cash distribution received.

Step-by-step explanation:

Jake is the sole shareholder of an S corporation that earned $60,000 in 2015. As an S corporation, the income, deductions, and credits pass through to shareholders and are taxed at their individual tax rates, regardless of whether the income is distributed. Therefore, Jake must recognize $60,000 of income from the S corporation in 2015, which is the total income earned by the corporation.