Kirby,the Sole Shareholder of Falcon,Inc

question 38

Essay

Kirby,the sole shareholder of Falcon,Inc.,leases a building to the corporation.The taxable income of the corporation for 2008,before deducting the lease payments,is projected to be $500,000.
a.What are the tax consequences to Kirby and to Falcon if Kirby leases a building to the corporation for $500,000?
b.Is there a potential pitfall? How would it change the tax consequences to Kirby and to Falcon?

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Definitions:

Consumption

The use of goods and services by households. It includes expenditures on goods and services, except for purchases of new housing.

Depreciation

The process by which physical assets lose value over time due to wear, tear, or obsolescence, affecting their monetary worth on financial statements.

Real GDP

Gross Domestic Product adjusted for inflation, providing a more accurate representation of an economy's size and how it's grown over time.

Economic Welfare

A broad measure that evaluates the standard of living and overall well-being of people within an economy.