Star Corp., an accrual-method C corporation, incurred the following expenses in 2018 (all
of which are ordinary and neccessary unless the facts indicate otherwise):
Office rent: $50,000
CEO compensation: $1,500,000
Salary paid to janitor: $250,000
Business meals: $60,000 (100% of the amount paid)
Client entertainment: $100,000 (100% of the amount paid)
Traffic fines: $5,000
Advertising: $70,000
Taxes & licenses (state, local & payroll): $30,000
Life insurance policy on CEO - premiums: $12,000
Average office rents in the area run $50,000-$55,000/year for similar office space. Star
Corp.'s janitor is the CEO's sister. Reasonable salary for a janitor with similar experience,
job description and work hours is $20,000/year. The CEO often runs late to important
meetings, and he has a tendency to speed (and get speeding tickets) on his way. Star
Corp. pays the speeding tickets. Star Corp. is the beneficiary on the life insurance policy.
What is Star Corp.'s total deductible business expenses?
Total deductible expenses wold include :
CEO Compensation | 1500000 | |
Office rent | 50000 | |
Salalry | 20000 | rest is allowed as it is not feasible and hence should be considered as drawings |
Bus. Meals | 60000 | |
Client exp. | 100000 | |
Traffic Fines | 0 | Penalty or fine are not deductible expense as per tax laws |
Advertising | 70000 | |
Taxes | 30000 | |
LIC premium | 12000 | Since Star Corp. is a beneficiary also it will be considered to be a part of ssalary |
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