Question

Robert 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 Robert’s $100,000 salary. In addition to his compensation, ABC pays Robert dividends of $250,000. What is Robert’s qualified business income? Would your answer to part (a) change if you determined that reasonable compensation for someone with Robert’s experience and responsibilities is $200,000? Why or why not

Answer 1

Answer and Explanation:

a. The calculation of the robert qualified business income is shown below:

Since robert is the sole shareholder and CEO of the ABC Inc and earned the income of $325,000 after subtracting the deduction of $100,000 salary

Also their is a dividend of $250,000

But the qualified business income should be equivalent to the net income i.e. $325,000

b. In the case when there is $200,000 so the net income would be decreased by $100,000

Now the qualified business income is

= $325,000 - $100,000

= $225,000