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7 September, 09:18

Alicia is the sole shareholder and CEO of ABC, Inc., an S corporation that is a qualified trade or business. During the current year, ABC has net income of $325,000 after deducting Alicia's $100,000 salary. In addition to her compensation, ABC pays Alicia dividends of $250,000. After reviewing comparable companies, you determine that reasonable compensation for someone with Alicia's experience and responsibilities is $200,000. What is Alicia's qualified business income?

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  1. 7 September, 10:52
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    Answer: $225,000

    Explanation:

    Given that,

    Net income = $325,000

    Alicia's salary = $100,000

    Dividends = $250,000

    Reasonable compensation = $200,000

    Actual Reasonable compensation = Reasonable compensation - Alicia's salary

    = $200,000 - $100,000

    = $100,000

    Alicia's qualified business income = Net income - Actual Reasonable compensation

    = $325,000 - $100,000

    = $225,000
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