Luis is the sole shareholder of a regular C corporation, and Eduardo owns a proprietorship. In the current year, both businesses make a profit of $80,000 and each owner withdraws $50,000 from his business. With respect to this information, which of the following statements is incorrect?
A) Eduardo must report $80,000 of income on his return.
B) Luis must report $80,000 of income on his return.
C) Eduardo's proprietorship is not required to pay income tax on $80,000.
D) Luis's corporation must pay income tax on $80,000.
E) None of these.

Question

Quizplus · Accepted Answer

Luis, as the sole shareholder of a C corporation, does not report the corporation's income on his personal tax return. Instead, the corporation itself is taxed on its income. Luis would only report the $50,000 he withdraws as dividend income, not the entire $80,000 of corporate profit.

Luis Is the Sole Shareholder of a Regular C Corporation