Tomas owns a sole proprietorship, and Lucy is the sole shareholder of a C corporation. In the current year, both businesses make a net profit of $60,000. Neither business distributes any funds to the owners in the year. For the current year, Tomas must report $60,000 of income on his individual tax return, but Lucy is not required to report any income from the corporation on her individual tax return. a. True

b. False

Question

Tia Curtis

Business

10 November, 15:24

Tomas owns a sole proprietorship, and Lucy is the sole shareholder of a C corporation. In the current year, both businesses make a net profit of $60,000. Neither business distributes any funds to the owners in the year. For the current year, Tomas must report $60,000 of income on his individual tax return, but Lucy is not required to report any income from the corporation on her individual tax return. a. True

b. False

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Answers (1)

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Josue Sexton · Answer 1

True

Explanation:

While a sole proprietor is expected to report his business income or loss on his personal tax form as the business is not considered for separate tax, a c corporation shareholders are taxed based on the dividends received from the business profit and the entire profit taxed for the corporation tax.

As no profit was distributed to the owners, there was no personal tax basis for Lucy but only the corporation tax that will be charged on the business net profit. This could have been a tax avoidance method adopted by Lucy to reduce his tax liabilities as a sole share holder.