Bjorn owns a 60% interest in an S corporation that earned $150,000 in 2013. 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) $30,000 income from the S corporation and $30,000 of dividend income from the C corporation.
C) $90,000 income from the S corporation and $0 income from the C corporation.
D) $90,000 income from the S corporation and $30,000 income from the C corporation.
E) None of the above.

Question

Quizplus · Accepted Answer

For an S corporation, the shareholders only pay tax on their share of the S corporation's income, regardless of whether they receive any distributions. Therefore, Bjorn must report 60% of the S corporation's $150,000 income, which is $90,000, on his individual tax return. 
For a C corporation, shareholders are taxed on both the corporation's income and any dividends received. Therefore, Bjorn must report the $30,000 of dividends he received from the C corporation as income on his individual tax return. 
Thus, the total income Bjorn must report from these businesses is $90,000 from the S corporation and $30,000 from the C corporation, making option D the correct answer.

Bjorn Owns a 60% Interest in an S Corporation That