Question

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

Answer 1

As the sole shareholder of the corporation, Jake will have to recognize the entire $60,000 of income from the S corporation in 2015, regardless of the fact that only $15,000 was distributed to him.

Step-by-step explanation:

Jake, as the sole shareholder of the corporation, will have to recognize the entire $60,000 of income from the S corporation in 2015, regardless of the fact that only $15,000 was distributed to him.

This is because an S corporation is a pass-through entity for tax purposes, meaning that the income and losses of the corporation are passed through to the shareholders in proportion to their ownership percentage. As the sole shareholder, Jake is responsible for paying taxes on the corporation's income, even if it is not distributed to him in cash.

It is important to note that the $15,000 distribution will be subject to individual income tax, but the remaining $45,000 of income that was not distributed will still be included in Jake's taxable income for the year.