Sarah, a Majority Shareholder in Teal, Inc

question 21

Multiple Choice

Sarah, a majority shareholder in Teal, Inc., made a $200,000 interest-free loan to the corporation. Sarah is not an employee of the corporation.

• A) Sarah must recognize imputed interest expense and the corporation must recognize imputed interest income.
• B) Sarah must recognize imputed interest income and the corporation must recognize imputed interest expense.
• C) Sarah must recognize imputed dividend income and the corporation may recognize imputed interest expense.
• D) Neither Sarah's nor the corporation's gross income is affected by the loans because no interest was charged.
• E) None of the above.

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Definitions:

Standard Deduction

A fixed amount that reduces the income on which you are taxed, which the IRS allows taxpayers to subtract from their gross income to reduce taxable income.

Joint Return

A tax return filed jointly by a married couple, combining their incomes, deductions, and credits.

Taxable Income

The amount of an individual's or entity's income used to determine how much tax is owed to the government.

Standard Deduction

A portion of income that is not subject to tax and can be used to reduce a taxpayer's taxable income.