Wanda is the Chief Executive Officer of Pink corporation, a publicly traded, calendar year corporation. For the current year, Wanda's compensation package consists of: Cash compensation $2.5 million
Nontaxable fringe benefits 250,000
Taxable fringe benefits 150,000
Bonus tied to company performance 2 million
How much of Wanda's compensation is deductible by Pink Corporation?
A) $1,000,000.
B) $1,250,000.
C) $3,250,000.
D) $4,900,000.
E) None of the above.

Question

Quizplus · Accepted Answer

The tax code limits the amount of compensation that can be deducted by a corporation for its top executives. For calendar year corporations, the limit is $1 million for the CEO and the four highest-paid executives. However, there are exceptions to this limit, such as performance-based bonuses, which are fully deductible.

In this case, Wanda's cash compensation and taxable fringe benefits add up to $2.65 million, which exceeds the $1 million limit. However, her nontaxable fringe benefits and performance-based bonus are fully deductible. Therefore, the total deductible compensation is $1.25 million ($2.5 million + $250,000 + $2 million - $150,000).

Wanda Is the Chief Executive Officer of Pink Corporation, a Publicly