The entity holds earnings and profits (AAA for an S corporation) of $900,000 at

Question

The entity holds earnings and profits (AAA for an S corporation) of $900,000 at the beginning of the year. A distribution of $200,000 is made to the owners a. Determine the income for each entity type below (1) If the entity is a C corporation then the taxable income is (2) If the entity is an s-corporation then the ordinary income of the corporation is $ b. Determine the effect of the distribution on the shareholders for the entity. (1) C corporation: Shareholders have $200,000 (2) S corporation: Shareholders have $200,000

Explanation / Answer

Taxation Difference Between C Corporation and S Corporation. Electing to operate as an S corporation provides owners with a different way of being taxed compared to a traditional C corporation. ... Therefore, the S corporation is not taxed at the corporate level, but only the shareholders are taxed at the individual level.

a 1) If entity is C Corporation then taxable income is $900000

2) if entity is S Corporation then taxable income is Nil

b 1) C Coraoration Shareholders have $200000 - taxable in the hands of Corporation not in the hands of Shareholders

2) S Coraoration Shareholders have $200000 - Taxable in the hands of Shareholders

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