McGraw-Hill's Taxation of Individuals and Business Entities 2020 Edition
11th Edition
ISBN: 9781260432466
Author: SPILKER, Brian
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Textbook Question
Chapter 15, Problem 28DQ
Why might it be a good tax planning strategy for an S corporation with one shareholder to pay a salary to the shareholder on the low end of what the services are potentially worth?
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Which of the following is correct? 1 It would be cheaper for ABCL to own and pay for the insurance policies because the corporate earnings in a small business corporation like ABCL are sheltered from tax, therefore the funds required to pay the insurance premiums could come out of completely tax-free corporate earnings. 2 It would be cheaper for ABCL to own and pay for the insurance policies because the company can deduct the premiums paid as a business expense, while the individuals would have to pay the premiums with after-tax dollars. 3 It would be cheaper for ABCL to own and pay for the insurance policies because a portion of corporate earnings in a small business corporation like ABCL are only taxed at around the 20% marginal rate, therefore lesser pre-tax corporate earnings would be required to generate the necessary after-tax funds to pay the insurance premiums.
(A) 1 only.
(B) 2 and 3 only.
(C) 1 and 2 only.
(D) 3 only.
Chapter 15 Solutions
McGraw-Hill's Taxation of Individuals and Business Entities 2020 Edition
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