Fireball Corporation is an S corporation.Leyla owns all of the stock.During the current year,Fireball earned taxable income of $500,000 and paid a $300,000 distribution to Leyla.Which of the following statements is correct?
A)Fireball will pay corporate income tax on its earnings,and Leyla will pay individual income tax on the distribution.
B)Only Fireball will pay taxes.Leyla will not pay any taxes due to her holdings in Fireball.
C)Fireball's income will flow through to Leyla's tax return,and she will pay the taxes on the $500,000 of corporate income.
D)Fireball will not pay any taxes,but Leyla will pay taxes on the distribution received.

Question

Quizplus · Accepted Answer

As an S corporation, Fireball's income is passed through to its shareholders. Therefore, Leyla will report the $500,000 of corporate income on her personal tax return and pay taxes on it. The distribution itself is not taxed again.

Fireball Corporation Is an S Corporation