Casey owns an executive placement agency that he operates as a sole proprietorship. Earlier this year, Casey hired his daughter, Brennan, as a placement advisor. Brennan, who recently earned her MBA, is one of the three placement advisors working for Casey; the other two placement advisors have college degrees but neither has an MBA. Casey hired Brennan at a salary equal to that he paid the other placement advisors even though they had far more experience. Given the profitability of his agency, Casey gave each of the three placement advisors a substantial bonus at year end. Brennan received a bonus of $25,000; the other placement advisors received a bonus of $10,000. 

 

a) May Casey deduct the salary and bonus he paid to Brennan? 

 

b) If the bonus paid to Brennan was deemed excessive given the nature of Brennan's work, her experience, and the salaries paid to individuals performing comparable work, how would the bonus be treated for tax purposes? 

Answer rating: 100% (QA)

a Deductibility of Salary and Bonus for Brennan Casey may generally deduct the salary and bonus he p... View the full answer