Question

When a business is operated as an S corporation, a disadvantage is that the shareholder must pay the tax on his or her share of the S corporation's income even though the S corporation did not distribute the income to the shareholder.

A. True
B. False

Answer 1

When a business is operated as an S corporation, the shareholder must pay taxes on their share of the income, regardless of whether the income is distributed or not.

Step-by-step explanation:

When a business is operated as an S corporation, the disadvantage is that the shareholder must pay taxes on their share of the S corporation's income, even if the income is not distributed to them. This is known as pass-through taxation. The S corporation itself is not taxed at the corporate level, but rather the shareholders report the income on their personal tax returns.