Question

Alvin is the sole shareholder of an S corporation that earned $200,000 in 2015 and distributed $75,000 to Alvin. Alvin must recognize $75,000 as income from the S corporation in 2015?

Which of the following statements is correct regarding Alvin, the sole shareholder of an S corporation that earned $200,000 in 2015 and distributed $75,000 to Alvin?
A) Alvin must recognize the entire $200,000 as income from the S corporation in 2015.
B) Alvin must recognize only the distributed amount of $75,000 as income from the S corporation in 2015.
C) Alvin is not required to recognize any income from the S corporation in 2015.
D) Alvin must recognize a portion of the $200,000 based on the percentage of ownership in the S corporation.

Answer 1

For an S corporation, shareholders must report the entire income of the corporation on their personal tax returns, not just the distributed amount. Therefore, Alvin must recognize the entire $200,000 as income from the S corporation in 2015 on his personal tax return.

Step-by-step explanation:

The correct statement regarding Alvin, the sole shareholder of an S corporation that earned $200,000 in 2015 and distributed $75,000 to him, is A) Alvin must recognize the entire $200,000 as income from the S corporation in 2015. This is because S corporations are pass-through entities for tax purposes, meaning that the income, deductions, and credits pass through the corporation and are reported on the shareholders' personal tax returns. Therefore, Alvin must report the entire $200,000 of the corporation's earnings on his tax return, regardless of the actual distribution amount.