Forward Corporation is owned by a group of 15 shareholders. During the current year, Forward pays $550,000 in salary and bonuses to Alvin, its president and controlling shareholder. The corporation's tax rate is 21%, and Alvin's marginal tax rate is 37% for ordinary income and 23.8% (20% + 3.8% on net investment income) for long-term capital gains. The IRS audits Forward's tax return and determines that reasonable compensation for Alvin is $350,000. Forward agrees to the adjustment. Read the requirement. Requirement What effect does the disallowance of part of the salary and bonus deduction have on Forward's and Alvin's respective tax positions? Ignore payroll taxes, such as FICA. Print - Done X
Forward Corporation is owned by a group of 15 shareholders. During the current year, Forward pays $550,000 in salary and bonuses to Alvin, its president and controlling shareholder. The corporation's tax rate is 21%, and Alvin's marginal tax rate is 37% for ordinary income and 23.8% (20% + 3.8% on net investment income) for long-term capital gains. The IRS audits Forward's tax return and determines that reasonable compensation for Alvin is $350,000. Forward agrees to the adjustment. Read the requirement. Requirement What effect does the disallowance of part of the salary and bonus deduction have on Forward's and Alvin's respective tax positions? Ignore payroll taxes, such as FICA. Print - Done X
Chapter11: The Corporate Income Tax
Section: Chapter Questions
Problem 11MCQ
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Question
Transcribed Image Text:Forward Corporation is owned by a group of 15 shareholders. During the current year, Forward pays $550,000 in salary and bonuses to Alvin,
its president and controlling shareholder. The corporation's tax rate is 21%, and Alvin's marginal tax rate is 37% for ordinary income and 23.8%
(20% + 3.8% on net investment income) for long-term capital gains. The IRS audits Forward's tax return and determines that reasonable
compensation for Alvin is $350,000. Forward agrees to the adjustment.
Read the requirement.
Requirement
What effect does the disallowance of part of the salary and bonus deduction have
on Forward's and Alvin's respective tax positions? Ignore payroll taxes, such as
FICA.
Print
Done
X
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