Question

When a business is operated as an S corporation, what is a disadvantage for the shareholder?

1) The shareholder must pay tax on their share of the S corporation's income
2) The S corporation did not distribute the income to the shareholder
3) The shareholder is not liable for any taxes
4) The S corporation is not required to file tax returns

Answer 1

A disadvantage for a shareholder when a business is operated as an S corporation is that they must pay tax on their share of the S corporation's income.

Step-by-step explanation:

When a business is operated as an S corporation, a disadvantage for the shareholder is that they must pay tax on their share of the S corporation's income. This is because an S corporation is a pass-through entity, meaning that the profits and losses of the corporation are passed through to the shareholders, who report them on their personal tax returns. The S corporation itself does not pay federal income tax, but the shareholders are responsible for paying taxes on their share of the corporation's income.