Question

Carlotta is the director of golf for Birck Enterprises, an electing S corporation. Carlotta owns a 20% interest in Birck. She receives a salary of $60,000 and fringe benefits costing $6,000. Birck's taxable income before considering the payments to and on behalf of Carlotta is $250,000. Birck's distributes a $50,000 dividend to its shareholders. How much income does Carlotta have from Birck?

$ 66,000

$ 70,000

$ 96,800

$ 98,000

$102,800

Answer 1

The correct answer is $102,800.

Explanation:Fringe benefits are normally excluded from taxation of employees.

However according to the publication 15-B of Internal Revenue Service"Employer's Tax Guide to Fringe Benefits" S corporation shareholders who hold more than 2% of its stock are treated as parthers in parthership firm.

That means Fringe benefits provided to Carlotta who owns 20% interest should be included in her wages.

Calculations:

$250,000-($60000+6000)=$184,000 is distributed among shareholders( salary 60000 and fringe benefits 6000 is treated as wages of Carlotta)

Now ($184,000×20%)=$36,800 is share of Carlotta which is also treated as income of Carlotta. Therefore carlotta has $ 60000+ $6000+$36800=$102,800 as income