If Part of a Shareholder/employee's Salary Is Classified as Unreasonable

question 44

Essay

If part of a shareholder/employee's salary is classified as unreasonable, determine the effect on the:
a. Shareholder/employee's gross income.
b. Corporation's taxable income.

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Definitions:

Real Estate

Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water.

Implicit Cost

Costs that represent the loss of potential income from using resources for one purpose instead of their next best alternative use.

Capital

Financial assets or physical goods that have value and are used in the production of other goods and services, such as machinery, buildings, or money.

Capital

Resources such as machinery, buildings, and equipment used in the production of goods and services.