Which of the following observations is true of an S corporation?
A)It elects to be taxed in the same manner as a corporation.
B)It does not have the burden of double taxation of corporate income.
C)Its shareholders have personal liability for the corporation's obligations.
D)Its primary income source should be passive investments.

Question

Quizplus · Accepted Answer

An S corporation does not have the burden of double taxation of corporate income. Instead, the income is passed through to the shareholders, who report it on their personal tax returns.

Option A is incorrect because an S corporation can still elect to be taxed as a partnership or sole proprietorship, not necessarily as a corporation.

Option C is incorrect because an S corporation offers limited liability protection to its shareholders, meaning that they would not have personal liability for the corporation's obligations.

Option D is incorrect because an S corporation is not limited to passive investments for income sources. It can engage in active business operations and generate income from various sources.

Which of the Following Observations Is True of an S