Question

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?

a. $-0-.
b. $225,000.
c. $200,000.
d. $325,000.
e. None of these choices are correct.

Answer 1

Alicia's qualified business income is $125,000.

Step-by-step explanation:

The qualified business income for Alicia can be calculated by subtracting her reasonable compensation from the net income of ABC, Inc. In this case, Alicia's reasonable compensation is $200,000, so the qualified business income is $325,000 - $200,000 = $125,000.