Bjorn owns a 60% interest in an S corporation that earned $150,000 in 2011. He also owns 60% of the stock in a C corporation that earned $150,000 during the year. The S corporation distributed $30,000 to Bjorn and the C corporation paid dividends of $30,000 to Bjorn. How much income must Bjorn report from these businesses?
A) $0 income from the S corporation and $30,000 income from the C corporation.
B) $90,000 income from the S corporation and $30,000 income from the C corporation.
C) $90,000 income from the S corporation and $0 income from the C corporation.
D) $30,000 income from the S corporation and $30,000 of dividend income from the C corporation.
E) None of the above.

Question

Quizplus · Accepted Answer

Bjorn's share of the S corporation's income is $90,000 (60% of $150,000). Since the S corporation is a pass-through entity, this income is reported on Bjorn's personal tax return regardless of whether it is distributed to him. Bjorn received a distribution of $30,000 from the S corporation, but this does not affect his taxable income from the corporation.

Bjorn's dividend income from the C corporation is $30,000 (60% of $50,000). This income is reported on his personal tax return as dividend income. Therefore, the total income that Bjorn must report from these businesses is $120,000 ($90,000 from the S corporation and $30,000 from the C corporation).

Bjorn Owns a 60% Interest in an S Corporation That