Maria owns 30% of the stock of Marshmallow Inc., an electing S corporation. Marshmallow reports taxable income of $100,000 and pays $80,000 in dividends to shareholders. What is Maria's income from Marshmallow?

Question

Quizplus · Accepted Answer

As an S corp shareholder, Maria's income is comprised of her share of the taxable income reported by Marshmallow, regardless of whether it was distributed as dividends or retained. In this case, Maria would include her share of Marshmallow's taxable income (30% of $100,000 = $30,000) in her personal income tax return. Marshmallow's payment of $80,000 in dividends is not included in her taxable income since these dividends were paid out of already taxed income.

Maria Owns 30% of the Stock of Marshmallow Inc