Question

Juan, an attorney, is the sole shareholder of Carmine Corporation, a C corporation and professional association. The corporation paid Juan a salary

of $336,000 during its fiscal year ending September 30, 2015.

a. How much salary must Carmine pay Juan during the period October 1 through
December 31, 2015, to permit the corporation to continue to use its fiscal year
without negative tax effects?

b. Carmine Corporation had taxable income of $95,000 for the year ending
September 30, 2015. Compute the corporation's income tax liability for the year.

Answer 1

To continue using its fiscal year without negative tax effects, Carmine Corporation must pay Juan an additional $336,000 for the remaining three months. Carmine Corporation's income tax liability for the year ending September 30, 2015 can be calculated using the given flat tax rates.

Step-by-step explanation:

a. To permit the corporation to continue using its fiscal year without negative tax effects, Carmine Corporation must pay Juan a salary during the period October 1 through December 31, 2015, equal to the salary paid during the fiscal year ending September 30, 2015. This means that Carmine must pay Juan an additional $336,000 for the remaining three months.

b. To compute Carmine Corporation's income tax liability for the year ending September 30, 2015, we need to determine the corporation's taxable income using the following formula: Taxable Income = Total Income - Deductions. The corporation had a taxable income of $95,000, so we can calculate the income tax liability using the given flat tax rates.