Alicia is the sole shareholder and CEO of ABC, Inc., an S corporation that is a qualified trade or business. During the current year, ABC has net income of $325,000 after deducting Alicia's $100,000 salary. In addition to her compensation, ABC pays Alicia dividends of $250,000. After reviewing comparable companies, you determine that reasonable compensation for someone with Alicia's experience and responsibilities is $200,000. What is Alicia's qualified business income?

Question

Quizplus · Accepted Answer

Alicia's qualified business income is calculated by subtracting the reasonable compensation from the total net income of the business. Therefore, QBI = $325,000 - $200,000 = $125,000. However, since Alicia receives dividends from the S corporation, her QBI is limited to her share of the net income of the business, which is $125,000 / 2 = $62,500. Therefore, the correct answer is C.

Alicia Is the Sole Shareholder and CEO of ABC, Inc