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 her experience and responsibilities is $200,000. What is Alicia's qualified business income?

Question

Quizplus · Accepted Answer

Alicia's qualified business income (QBI) is $225,000. This is calculated by taking the net income of the S corporation ($325,000), then adjusting for the difference between the salary paid ($100,000) and what is determined to be reasonable compensation ($200,000). The adjustment increases her deemed salary to the reasonable amount, reducing the QBI by the additional $100,000, resulting in $225,000.

Alicia Is the Sole Shareholder and CEO of ABC, Inc