Dr. Sanders is a veterinarian who is the sole shareholder of Vet, Inc., an S corporation. The corporation offers Dr. Sanders' consulting and surgical services to other veterinarians. Dr. Sanders does not receive regular payments from the corporation, but withdraws

Dr. Sanders is a veterinarian who is the sole shareholder of Vet, Inc., an S corporation. The corporation offers Dr. Sanders' consulting and surgical services to other veterinarians. Dr. Sanders does not receive regular payments from the corporation, but withdraws funds as the need arises. During the current year, he withdraws $118,000, and the net income of the corporation is $225,000. The corporation does not deduct the $118,000, nor does Dr. Sanders include it in his gross income.

Dr. Sanders does, however, report the $225,000 in his gross income. Because Dr. Sanders has recognized all of the corporation's income, he sees no need to pay himself a salary. He justifies the treatment by arguing that he is not an employee (i.e., he is the owner) of the corporation and that the Federal income tax consequences are the same.

Evaluate the approach taken by Dr. Sanders and Vet, Inc.

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...

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Related Book For  answer-question

South Western Federal Taxation 2016 Corporations Partnerships Estates And Trusts

ISBN: 9781305399884

39th Edition

Authors: James Boyd, William Hoffman, Raabe, David Maloney, Young

Posted Date: September 09, 2015 07:04:27