Siegal Management Corporation has operated as an S corporation for the years 201

Question

Siegal Management Corporation has operated as an S corporation for the years 2012, 2013, and 2014. The shareholders of the corporation are Erica and Dina. They each own 200 shares of stock of the corporation, for which each paid $25,000 at the beginning of 2012. The corporations ordinary income and cash distributions for the three years are as follows. How much do Erica and Dina report as income on their individual income tax returns for 2014? Compute Erica and Dina's stock bases at the end of 2014.

Explanation / Answer

a. Being the shareholders of the S Corporation, Erica and Dina has to report their portion of the total Ordinary income and Cash distributed on their individual income tax returns for 2014. So, they both have to report $20,000 each in their individual income tax returns. This is because, In general, S corporations do not pay any federal income taxes. Instead, the corporation's income or losses are divided among and passed through to its shareholders. The shareholders must then report the income or loss on their own individual income tax returns.

b. Both Erica and Dina had paid $25000 for their share holding of 200 shares in Siegal Management Corporation. The base price of stock is $125 per share i.e. ($25,000 / 200).

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