Question

Partnerships and S Corporations are generally not required to file a Federal tax return because they...

Partnerships and S Corporations are generally not required to file a Federal tax return because they are not taxable entities. a. true. b. false.

Mary Kate is a 100% owner of MK, Inc., a C Corporation. In the current year, MK, Inc., reports $200,000 of taxable income and pays a $50,000 dividend to Mary Kate. Mary Kate is also a 100% owner of SMK, Inc., an S Corporation. In the current year, MK, Inc., reports $250,000 of taxable income and makes a $75,000 distribution to Mary Kate. How much taxable income related to MK, Inc,, and SMK, Inc., respectively, will Mary Kate report for the current year?

a. $200,000 from MK, Inc., and $250,00 from SMK, Inc.

b. $50,000 from MK, Inc., and $250,00 from SMK, Inc.

a. $50,000 from MK, Inc., and $75,00 from SMK, Inc.

a. $200,000 from MK, Inc., and $75,00 from SMK, Inc.
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Homework Answers

Answer #1

Ans.1. The answer is False.

Partnerships and S corporations both are required to file Federal tax returns, even if they are not taxable entities. Partnerships and S corporations are ‘pass-through’ entities,i.e., they are allowed to pass their incomes/losses to partners and shareholders respectively, and the income is taxed in partners’ and shareholders’ respective income tax returns. However, both are required to file annual Federal tax returns stating the incomes, losses, expenses, etc. While partnerships are required to file Form 1065 for filing federal tax returns, S corporations are required to file Form 1120S to file their annual federal tax returns.

Ans.2.

MK Inc. (C Corporation) : Taxable income $200,000, dividend paid $50,000

SMK Inc. (S Corporation) : Taxable income $250,000, dividend paid $75,000

A C Corporation is required to pay corporate income tax on its income. Dividends are paid to shareholders out of post-tax income, if any. On the contrary, an S corporation is allowed to ‘pass-through’ its incomes and losses to its shareholders, which are then taxable in shareholders’ personal tax returns.

So, in this case, Mary Kate will be required to include $50,000 income from MK Inc. (C Corporation) a nd entire $250,000 income from SMK Inc.(S Corporation).

Therefore, correct option is B.

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