Jones operates an upscale restaurant and he pays experienced cooks $35,000 per year. This year, he hired his son as an apprentice cook. Jones agreed to pay his son $40,000 per year. Which of the following is a true statement about this transaction?
A)Jones will be allowed to deduct $40,000 only if his son eventually develops into an expert cook.
B)Jones will be allowed to accrue $40,000 only if he pays his son in cash.
C)Jones will be allowed to deduct $35,000 as compensation and another $5,000 can be deducted as an employee gift.
D)Jones is not entitled to any business deduction until the son is an experienced cook.
E)None of the choices are true.

Question

Quizplus · Accepted Answer

The IRS allows businesses to deduct reasonable wages paid for services performed, but the payment to Jones's son exceeds the typical pay for the position, which could raise questions about the reasonableness of the deduction. None of the provided choices accurately describe how the IRS would handle this situation, as the IRS does not specifically allow extra compensation to be categorized as a gift, nor do the other conditions apply.

Jones Operates an Upscale Restaurant and He Pays Experienced Cooks