How must Rajib report the income from his S corporation, according to tax regulations?

Rajib must report total profit from his S corporation, regardless of any withdrawals made during the year. This is because S corporations are pass-through entities, meaning that income, deductions, and credits pass through to the individual shareholders’ tax returns rather than being taxed at the corporate level.

As a shareholder in an S corporation, Rajib needs to report on his personal tax return both the allocated share of the corporation's profits and losses based on his ownership percentage. The income is reported on Schedule E of the personal tax return, resulting in tax liabilities based on the total profit, irrespective of any cash or distributions withdrawn from the corporation.

This principle is crucial because it emphasizes that income recognition happens when the corporation earns the profit, not when or if the shareholder receives it as a distribution. Therefore, Rajib will need to pay taxes on the total profit reported, ensuring that his tax obligation reflects the corporation's earnings rather than just the amounts he takes out.