Which of the following statements is correct?
A)An owner of a C corporation is taxed on his or her proportionate share of earnings.
B)S shareholders are only taxed on distributions.
C)S shareholders are taxed on their proportionate share of earnings that are distributed.
D)S shareholders are taxed on their proportionate share of earnings whether or not distributed.

Question

Quizplus · Accepted Answer

S shareholders are taxed on their proportionate share of the corporation's earnings regardless of whether those earnings are distributed. This is a key feature of S corporations, which contrasts with C corporations where the corporation itself is taxed on earnings, and then shareholders are taxed again on dividends received.

Which of the Following Statements Is Correct