The Vanity Corporation Organized and Began Operations in January

question 68

Essay

The Vanity Corporation organized and began operations in January. The corporation's ten equal shareholders elect to have Vanity taxed as an S corporation, and the election and necessary consents are filed in a timely manner. For its first tax year ended December 31, Vanity has ordinary income of $64,000 and short-term capital gains of $16,000. During the year, it distributes $30,000 in cash equally to its ten shareholders. For the year, how much income should each shareholder report and how should it be characterized?

---

Definitions:

Expectation Profit

The anticipated financial gain or potential that an investment or business venture may generate in the future, based on certain assumptions or forecasts.

Present Value

The today's value of future money or cash flows, determined by applying a chosen rate of return.

Market Value

The current price at which an asset or service can be bought or sold in an open market.

Future Earnings

The projected income a company or individual is expected to generate in upcoming periods.