Owen and Jessica own and operate an S corporation.Each is a 50% owner.The business reports the following results: Business revenue $ 225,000
Business expenses 88,000
Investment expenses 16,000
How do Owen and Jessica report these items for tax purposes?

Question

Quizplus · Accepted Answer

As an S corporation, the business itself does not pay income tax. Instead, the income, deductions, and credits are passed through to the shareholders on their individual tax returns.

For this scenario, Owen and Jessica each report 50% of the business's income and expenses.

The business revenue of $225,000 minus the business expenses of $88,000 equals a net business income of $137,000. Each shareholder reports 50% of the net business income, which is $68,500 ($137,000 x 0.5).

The investment expenses of $16,000 are reported on Schedule A as miscellaneous itemized deductions subject to the 2% of adjusted gross income (AGI) limitation. Each shareholder can claim 50% of the investment expenses on their individual tax return, which is $8,000 ($16,000 x 0.5).

Owen and Jessica Own and Operate an S Corporation