An S Corporation with three shareholders earns $300,000 in taxable income. Instead of the corporation paying federal income tax, this income is divided among the shareholders. Each shareholder reports their portion of the income, $100,000, on their individual tax returns and pays tax based on their personal income tax rates.
During the meeting, the business owner explained that choosing an S Corporation status would be beneficial as it allows income to pass directly to shareholders, potentially reducing the tax burden.
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