Mary purchased 40 percent of an S corporation on February 28 of the current year and sells a 20 percent interest on November 30.If the corporation reports $10,000 of income for the year, what income does it report on Mary's Schedule K-1.

Question

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Mary's share of the income is calculated based on the time she owned the shares and the percentage of the corporation she owned during that time. From February 28 to November 30, she owned 40% of the corporation, and for the rest of the year, she owned 20%. The corporation's income for the year is $10,000. The income reported on Mary's Schedule K-1 would be calculated based on her proportional ownership throughout the year, resulting in $3,184.

Mary Purchased 40 Percent of an S Corporation on February