Question

What taxation type allocates ordinary business income (loss) and separately reported items to shareholders based on their stock ownership interests?

a) Separate entity, only pays special taxes
b) Similar to partnership taxation, business income (loss) flows through to the shareholders
c) Ordinary business income (loss) and the separately reported items are allocated to the shareholders according to their stock ownership interests

Answer 1

The taxation type that allocates ordinary business income (loss) and separately reported items to shareholders based on their stock ownership interests is similar to partnership taxation and involves pass-through taxation.

Step-by-step explanation:

The taxation type that allocates ordinary business income (loss) and separately reported items to shareholders based on their stock ownership interests is b) Similar to partnership taxation, business income (loss) flows through to the shareholders. This type of taxation is called pass-through taxation and is commonly used by partnerships and S corporations. In pass-through taxation, the business itself does not pay taxes, instead, the income or losses are passed through to the shareholders or partners who report it on their individual tax returns.