S Corporation Income And Loss Rules Practice Test

The S corporation pays tax on corporate-level income; shareholders are taxed only on dividends received.

The S corporation pays tax at the corporate rate on all income; shareholders are not taxed.

The S corporation itself generally pays no income tax; instead, each shareholder includes their pro-rata share of S corporation income, loss, deductions, and credits on their own return, regardless of actual distributions.

Shareholders are taxed only when they sell their S corporation stock.