Jake is the sole shareholder of an S corporation that earned $60,000 in 2018. The corporation was short on cash and therefore distributed only $15,000 to Jake in 2018. Jake is required to recognize $60,000 of income from the S corporation in 2018.

Question

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As the sole shareholder of the S corporation, Jake is required to report his share of the corporation's income on his personal tax return, regardless of whether the income was actually distributed to him as cash. Therefore, Jake must recognize $60,000 of income from the S corporation on his personal tax return for 2018, even though he only received $15,000 in cash distributions.

Jake Is the Sole Shareholder of an S Corporation That