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Income from Flow-through Entities

Dominique and Terrell are joint owners of a bookstore. The business operates as an S corporation. Dominique owns 65% and Terrell owns 35%. The business has the following results in the current year.

Revenue $1,500,000
Business expenses 750,000
Charitable Contributions 50,000
Short-term capital losses 4,500
Long-term capital gains 6,000

How do Dominique and Terrell report these items for tax purposes?

Solution Preview

The excess of revenue over business expenses of $750,000 (i.e., $1,500,000 of revenues less $750,000 in business expenses) is considered to be ordinary business income. Dominique will report 65 percent of this amount, or $487,500, and Terrell will report 35 percent of this ...

Solution Summary

Given various income and expense items of an S corporation, this solution discusses how each owner will report the item on his or her tax return.