Donald owns a 40% interest in a partnership that earned $140,000 in the current year.He also owns 40% of the stock in a C corporation that earned $140,000 during the year.Donald received $30,000 in distributions from each of the two entities during the year.With respect to this information,Donald must report $60,000 of income on his individual income tax return for the year.

Question

Quizplus · Accepted Answer

In a partnership, income is passed through to partners, so Donald reports 40% of $140,000 ($56,000) as income. In a C corporation, income is taxed at the corporate level, and distributions are dividends. Donald reports only the $30,000 received as dividends, totaling $86,000, not $60,000.

Donald Owns a 40% Interest in a Partnership That Earned