The Portion of a Shareholder-Employee's Salary That Is Classified as Unreasonable

question 105

True/False

The portion of a shareholder-employee's salary that is classified as unreasonable has no effect on the amount of a shareholder-employee's gross income, but results in an increase in the taxable income of the corporation.

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Definitions:

Repurchase Shares

The action by a company to buy back its own shares from the marketplace, reducing the amount of outstanding stock.

Deceased Shareholder

A situation where a shareholder of a company passes away, triggering legal and financial actions regarding the ownership of the shares.

Flotation Costs

Expenses incurred by a company in issuing new securities, including underwriting fees, legal fees, and registration fees.

Financial Leverage

The use of borrowed money to increase the potential return of an investment.