7 zorn conducted his professional practice through

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7. Zorn conducted his professional practice through Zorn, Incorporated. The corporation uses a fiscal year ending September 30 even though business purpose test for a fiscal year cannot be satisfied for the year ending September 30,2015, the corporation paid Zorn a salary of $180,000, and during the period of January through September 2015, the corporation paid him a salary of $150,000. a. How much salary should Zorn receive during the period of October 1 through December 31,2015? b. Assume that Zorn received only $24,000 salary during the period October 1 through December 1, 2015. What would be the consequences to Zorn, Incorporated? The answer for a is, Zorn is the sole partner of the company he is required by law to follow a calendar year instead of the fiscal year if he hasn’t been authorized to do so by the Internal Revenue Service. If his salary from October through December was the same as previous months he would be paid a salary of $110,000. $180,000 + $150,000 = $330,000 divided by 9 * 3 = $110,000. The answer for b is, there could be the possibility the company didn’t earn sufficient income during the winter months. Therefore, the company will undergo some negative tax affects due to Zorn not receiving at least $110,000 for three months. Salary payments which surpass the limitation are not allowed to be claimed as an expense of the corporation for the year of that year’s payment, but may be carried over to a subsequent year and are subject to the limitation on deductions in the late years.
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6 Week 7 Assignment
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  • Spring '15
  • Basa
  • Fiscal Year, Corporation, Taxation in the United States, Generally Accepted Accounting Principles, Calendar year

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