Juan is the sole shareholder of an S corporation,and Diego owns a sole proprietorship.Both businesses,which were started in 2008,make a profit of $300,000 in 2008.Each owner withdraws $225,000 from his business during the year.Which of the following statements is correct?
A)Diego must report net profit from his business of $300,000 for 2008.
B)Juan must report dividend income of $300,000 for 2008.
C)Diego's proprietorship is required to pay tax on the $300,000 profit for 2008.
D)Juan's S corporation must pay tax on $300,000 for 2008.
E)None of the above.

Question

Quizplus · Accepted Answer

Juan must report the profit of $300,000 for 2008 (but not as dividend income-see choice b.).The S corporation,which is a flow-through entity,is not required to pay tax on its $300,000 profit.Diego must report net profit from his business of $300,000 for 2008,but the proprietorship is not a taxable entity.

Juan Is the Sole Shareholder of an S Corporation,and Diego