Question

Mackenzie works full-time as a director of a corporation. She is also a shareholder in an S corporation, a family restaurant. Mackenzie does not do any work for the restaurant, but does receive a Schedule K-1 for her share of the income. Where would that income be reported on her tax return?

1) Schedule B, Interest and Ordinary Dividends
2) Schedule C, Profit or Loss from Business
3) Schedule D, Capital Gains and Losses
4) Schedule E, Supplemental Income and Loss

Answer 1

Mackenzie should report her income from the S corporation on Schedule E, Supplemental Income and Loss, as this is used for pass-through entities like S corporations.

Step-by-step explanation:

Mackenzie's income from her share in an S corporation, the family restaurant, should be reported on Schedule E, Supplemental Income and Loss. This form is used for reporting income from pass-through entities, such as S corporations, partnerships, and trusts.

Since Mackenzie does not actively work in the restaurant but receives a Schedule K-1 documenting her share of the income, Schedule E is the appropriate place to report this income on her tax return.

Income from S corporations is passed through to the shareholders and is taxed at their individual income tax rates, and it is not subject to corporate income tax. Unlike C corporations, S corporations do not pay income tax at the corporate level.