Reasonable salary and bonus income of a sole shareholder of Camel Corp
Camel is the sole shareholder of Desert, Inc. Desert’s taxable income before the payment of Camel's salary is $175,000. Based on this, Camel has the corporation pay him a salary of $100,000 and a bonus of $75,000. A reasonable salary and bonus would be $125,000. Which of the following is correct?
a. The taxable income of Desert, Inc., is $0 ($175,000 - $175,000 salary and bonuses).
b. The taxable income of Desert, Inc., is $75,000 ($175,000 - $100,000).
c. Camel has salary and bonus income of $125,000.
d. Camel has salary and bonus income of $125,000 and dividend income of $50,000.
e. None of the above.
The solution explains that there are three possible answers to the problem depending on circumstances detailed in the solution. After the three are explained in a paragraph each, there is a statement about the preferred solution.
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