Sale of S Corporation Stock
Response to the following problem:
Jordan owned a 10% interest in an S corporation for several years. The basis of his stock on January 1, 2014 is $40,000. On April 30, 2014, Jordan sells his entire interest in the S corporation for $58,000. For the calendar year 2014, the S corporation estimated that its ordinary income would be $80,000. No distributions were made in 2014 prior to the sale of Jordan's stock.
a. On April 30, 2014, the date of sale, what is the expected gain Jordan will report on his 2014 tax return as the result of the sale of his stock?
b. At year end, the S corporation determines that its actual ordinary income for 2014 is $100,000. On the basis of this year-end knowledge, does this additional information affect Jordan's 2014 tax return? If so, how is the 2014 tax return affected, and if it is not affected, why not?