Rajib is the sole shareholder of Cardinal Corporation, a calendar year S corporation. In the current year, Cardinal generated a net profit of $350,000 ($520,000 gross income – $170,000 operating expenses) and distributed $80,000 to Rajib. Rajib must report the Cardinal Corporation profit of $350,000 on his Federal income tax return.
Answer the following statement true (T) or false (F)
True
Rationale: Similar to partnerships, the net profit or loss of an S corporation flows through to the shareholders to be reported on their individual tax returns. Robin’s net income of $350,000 is allocated entirely to Rajib as the sole shareholder, and Rajib reports the $350,000 of income on his Federal income tax return regardless of how much of the income was withdrawn from the S corporation.
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