Lavery Corporation has two equal shareholders, and has been an electing S corporation since its inception. In the current year, Lavery has taxable income of $60,000. This amount includes $50,000 from operations and $10,000 from investment interest income. Because of these events, each shareholder's adjusted basis in the stock will increase by
A)$- 0 -
B)$10,000
C)$25,000
D)$30,000
E)$50,000

Question

Quizplus · Accepted Answer

Each shareholder's adjusted basis in the stock will increase by $30,000. This is because the taxable income of $60,000 is passed through to the shareholders equally, given there are two shareholders. Each shareholder would report $30,000 of income on their individual tax returns, which increases their basis in the S corporation stock.

Lavery Corporation Has Two Equal Shareholders, and Has Been an Electing