Question

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

O Schedule b
O schedule c
O schedule d
O scgedule e

Answer 1

Mackenzie should report her share of the income from the S corporation on Schedule E of her tax return since it is considered passive income, and the receipt of Schedule K-1 supports this filing method.

Step-by-step explanation:

The income Mackenzie receives from the S Corporation, where she is a shareholder but doesn't perform any work for the restaurant, would be reported on Schedule E of her tax return. This schedule is used for reporting income or loss from rental real estate, royalties, partnerships, S corporations, estates, trusts, and residual interests in REMICs. Since Mackenzie receives a Schedule K-1, which reflects her share of the income from the S corporation, it directly implies that the income is passive and not subject to self-employment taxes, which is characteristic of Schedule E and not Schedules B, C, or D.

It is important to use the correct schedule to ensure compliance with IRS regulations and to accurately represent one's income and taxes due. For Mackenzie, whose involvement with the S corporation is solely as a non-working shareholder, Schedule E is the appropriate place to report this income.