Question

Star Corp., a publicly traded, accrual-method C corp., incurred the following expenses in 2020 (all of which are ordinary and neccessary unless the facts indicate otherwise):
Office rent: $50,000
CEO compensation: $1,500,000
Salary paid to janitor: $250,000
Business meals: $30,000 (100% of the amount paid)
Client entertainment: $100,000 (100% of the amount paid)
Political contribution/lobbying: $5,000
Advertising: $70,000
Taxes & licenses (state, local &
payroll tax; not fed. inc. tax): $30,000
Life insurance policy on CEO - premiums: $12,000
Federal income taxes: $250,000
Average office rents in the area run $50,000-$55,000/year for similar office space. Star Corp.'s janitor is the CEO's sister. Reasonable salary for a janitor with similar experience, job description and work hours is $20,000/year. Star Corp. is the beneficiary on the life insurance policy. What is Star Corp.'s total deductible business expenses for the year?

Answer 1

Answer:

Star Corp.

Star Corp.'s total deductible business expenses for the year is:

= $1,952,000.

Explanation:

Ordinary and Necessary Expenses incurred in 2020:

Office rent:                                 $50,000

CEO compensation:              $1,500,000

Salary paid to janitor:              $250,000

Business meals:                        $30,000 (100% of the amount paid)

Client entertainment:             $100,000 (100% of the amount paid)

Political contribution/lobbying:  $5,000

Advertising:                              $70,000

Taxes & licenses (state, local &

payroll tax; not fed. inc. tax):   $30,000

Life insurance policy on CEO

- premiums:                            $12,000

Federal income taxes:        $250,000

Total expenses incurred $2,297,000

Total Deductible Business Expenses for the year:

Office rent:                                     $50,000

CEO compensation:                 $1,500,000

Salary paid to janitor:                    $20,000

Business meals:                            $15,000 (50% of $30,000)

Client entertainment:                            $0 (0% of $100,000)

Political contribution/lobbying:      $5,000

Advertising:                                  $70,000

Taxes & licenses (state, local &

payroll tax; not fed. inc. tax):       $30,000

Life insurance policy on CEO

- premiums:                                $12,000

Federal income taxes:            $250,000

Total deductible expense = $1,952,000