Paying reasonable compensation to a shareholder-employee avoids double taxation on the amount of the compensation.

Question

Quizplus · Accepted Answer

By paying reasonable compensation to a shareholder-employee, the amount is deducted as a business expense, which reduces the corporation's taxable income. The shareholder-employee pays taxes on the compensation as regular income, but the amount is not subject to double taxation.

Paying Reasonable Compensation to a Shareholder-Employee Avoids Double Taxation on the Amount