Question

Assume 20 people join hands and form an S Corporation named “TAXIN R US” in year 2019 and contribute $10,000 each. Assume there are no nonresident aliens in this corporation. In the year 2019, Mandy and Sally, starts taking distributions of $15,000 each without receiving any reasonable salary. Both these shareholders devote almost 100% of their time to this business. Please describe in detail, the tax implications on this distribution to the company and to the shareholders. Assume the business made money and has positive AAA account balance.

Answer 1

Answer The people join hands and form & corporation means distribution of cash stock any other assets as dividend non-dividend . It is distribe tion of income of the company to the shareholders. s corporation obviously means company poging the shareholdes non - dividend distribution generated from cash profits mentioned that company . Tan impactation has corporation pass through entitics means that are not taxed déredy their income tored in the hands of shareholders Tan payable s cooperation on their earned in 2014 pass through profil income

depending on the cost basis. cost basic is calculated as follow Shareholder initial investment 10,000 We Assume & 20000 share of ordinary income each shareholder 1000 1000 + 1000-15000 El1000 - 15000 - 4000 Basis higher than distribution no amount of distribution toomcable in shareholder cost basis lower than distribution this case tunable in hand & Shareholder long term capital gan de duction 20% shareholder from Share & corporation profit