Assume Joe Harry sells his 25percent interest in Joe's S Corporation, to Tyrone on January 29. Using the daily allocation method, how much income does Joe Harry report if Joe's S Corporation, earned $200,000 from January 1 to January 29 and a total of $1,460,000 from January 1 through December 31 (365 days)?

Question

Quizplus · Accepted Answer

Joe Harry's share of the income for the period he was a shareholder is calculated by taking 25% of the income earned from January 1 to January 29. The daily allocation method means we calculate the income for the days he was a shareholder. The corporation earned $200,000 in that period, so Joe's share is 25% of $200,000, which is $50,000. However, the question asks for the income Joe reports, which is based on his ownership percentage for the entire year. The correct calculation is 25% of the total annual income of $1,460,000, which is $365,000. But since he only owned the shares for 29 days, we prorate this amount: ($365,000 / 365 days) * 29 days = $29,000.

Assume Joe Harry Sells His 25percent Interest in Joe's S