Bonus equal to difference in corporations taxable income

Assignment Help Financial Accounting

Reference no: EM131262273

Nittany Company pays its sole shareholder, Tammy Lion, a salary of $105,600. At the end of each year, the company pays Tammy a "bonus" equal to the difference between the corporation’s taxable income for the year (before the bonus) and $67,500. In this way, the company hopes to keep its taxable income at amounts that are taxed at either 15 percent or 25 percent. This year, Nittany reported pre-bonus taxable income of $683,500 and paid Tammy a bonus of $616,000. On audit, the IRS determined that individuals working in Tammy’s position earned on average $308,000 per year. The company had no formal compensation policy and never paid a dividend.

a. How much of Tammy’s bonus might the IRS recharacterize as a dividend?

b. Assuming the IRS recharacterizes $206,800 of Tammy’s bonus as a dividend, what additional income tax liability does Nittany Company face?

Reference no: EM131262273

Questions Cloud

Calculate amount of under-over-absorbed overhead for year : Carmen has a bakery that specializes in dog foos in a variety of sizes and flavors. Carmen uses a flexible budget to forecast manufacturing overhead, which is then allocated to products based on over hours. Calculate the overhead application rate at ..

Routine maintenance of production equipment : How would I write journal entries for the following? Sold land that had originally cost $117,000 for $102,600 in cash. Recorded a $612,000 payment for the cost of developing and registering a patent. Expensed $14,100 of cash expenditures incurred for..

Does this qualify as a sale or exchange : Bonnie and Clyde are the only two shareholders in Getaway Corporation. Bonnie owns 60 shares with a basis of $7,300, and Clyde owns the remaining 40 shares with a basis of $16,000. At year-end, Getaway is considering different alternatives for redeem..

Disregarding any interest liabilities : Alexi files her tax return 5 days after the due date. Along with the return, she remits a check for 6,700, which is the balance of the tax she owes. The failure to file is not is attributable to fraud. Assume 30 days in a month. If required, round yo..

Bonus equal to difference in corporations taxable income : Nittany Company pays its sole shareholder, Tammy Lion, a salary of $105,600. At the end of each year, the company pays Tammy a "bonus" equal to the difference between the corporation’s taxable income for the year (before the bonus) and $67,500. How m..

Assuming the distribution is non-taxable : Badger Corporation declared a stock dividend to all shareholders of record on March 25 of this year. Shareholders will receive one share of Badger stock for each 10 shares of stock they already own. What amount of taxable dividend income, if any, doe..

What is the income tax imposed on the corporate income : Bulldog Corporation reported taxable income of $660,000 this year, before any deduction for any payment to its sole shareholder and employee, Georgia Brown. Bulldog chose to pay a bonus of $172,000 to Georgia at year-end. Bulldog Corporation is subje..

Companies logos that are immediately identifiable : There are companies logos that are immediately identifiable. Starbucks for example opens locations around the world with little to no advertising or promotion and there are lines around the block at every opening. Why do some companies need to promot..

What is current portion of long-term liabilities : What is current portion of long-term liabilities. What are some examples? How is the current portion determined and why?

User Account

All Pages