Question

Broadbill Corporation, a calendar year C corporation, has two unrelated cash method shareholders: Marcia owns 51% of the stock, and Zack owns the remaining 49%. Each shareholder is employed by the corporation at an annual salary of $240,000. During 2017, Broadbill paid each shareholder-employee $220,000 of his or her annual salary, with the remaining $20,000 paid in January 2018. How much of the 2017 salaries for Marcia and Zack is deductible by Broadbill in 2017?a. For a cash method taxpayer, the amount of the 2017 salaries that is deductible in 2017 is $.b. For an accrual method taxpayer, in 2017, Broadbill can deduct $

Answer 1

Explanation:

a. A cash method taxpayer?

Ans: $220,000

b. An accrual method taxpayer?

Ans: $240,000

The company has an annual salary of $240,000 for every shareholder. Throughout 2017, Broadbill charged $220,000 throughout annual salary rising investor-employee and $20,000 in January 2018.

Tax payers whom use this accrual approach have to include in their taxable income some money that they are entitled to receive as reimbursement for benefit, after it is received. Cash-based taxes can neither disclose as wages nor subtract as compensation promissory notes.