Question

Edith is the CEO of Energize, a publicly held corporation. For the year, she receives a salary of $950,000, a bonus of $600,000, and contributions to her retirement plan of $35,000. The bonus was awarded at the December board meeting based on Edith's threat to accept a better paying job with a competitor. What amount may Energize deduct?

a.$950,000
b.$985,000
c.$1,585,000
d.$1,035,000
e.$1,550,000

Answer 1

Energize may deduct a total of $1,585,000 for Edith's compensation, assuming that the salary, bonus, and retirement contributions are all ordinary, necessary, and reasonable business expenses.

Step-by-step explanation:

To ascertain the amount Energize may deduct for tax purposes, we must evaluate the components of Edith's compensation. Her salary of $950,000, bonus of $600,000, and retirement plan contributions of $35,000 are all considered business expenses. However, the bonus was given under a threat to leave the company, which may affect its deductibility depending on the specific tax laws and whether it is deemed ordinary and necessary. Assuming all payments are ordinary, necessary, and reasonable, the total deductible amount for Energize would be the sum of the salary, bonus, and retirement contributions, totaling $1,585,000.