Saleh, an accountant, is the sole shareholder of Turquoise Corporation, a C corporation. Turquoise is a personal service corporation with a fiscal year ending September 30 (pursuant to a § 444 election). The corporation paid Saleh a salary of $330,000 during its fiscal year ending September 30, 2019. How much salary must Turquoise pay Saleh during the period October 1 through December 31, 2019, if the corporation is to continue to use its fiscal year without negative tax effects?
A) $0
B) $27,500
C) $82,500
D) $247,500
E) None of these.

Question

Quizplus · Accepted Answer

To avoid negative tax effects, a personal service corporation must pay its owner-employees a salary that is at least equal to the lesser of 25% of the prior year's salary or the salary for the short period. Here, 25% of $330,000 is $82,500, which is the amount that must be paid to Saleh for the period October 1 through December 31, 2019.

Saleh, an Accountant, Is the Sole Shareholder of Turquoise Corporation