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 alicia’s experience and responsibilities is $200,000. what is alicia’s qualified business income?

$225,000

Explanation:

Given that,

Net income = $325,000

Alicia’s salary = $100,000

Dividends = $250,000

Reasonable compensation = $200,000

Actual Reasonable compensation = Reasonable compensation - Alicia’s salary

                                                         = $200,000 - $100,000

                                                         = $100,000

Alicia’s qualified business income = Net income - Actual Reasonable compensation

                                                         = $325,000 - $100,000

                                                         = $225,000

u = 30

continuing your method

= +

subtract from both sides

= - thus

= -

= ⇒ u = 30

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