Shanon is the COO of Palazzo Corporation. Palazzo is a closely held (non-public) accrual basis calendar year
Question:
Shanon is the COO of Palazzo Corporation. Palazzo is a closely held (non-public) accrual basis calendar year corporation. Palazzo manages nursing homes and long-term care facilities in several cities in the Southwest. While she does not own any Palazzo stock, Shanon is otherwise well compensated for her excellent management skills. Shanon’s compensation package includes a base salary of $650,000 plus a bonus of 5% of Palazzo’s pre-tax profits. With respect to 2020 and in accord with her compensation package, Shanon received total compensation from Palazzo of $1,675,000 (the total paid or accrued). Her final bonus check of $185,000 (gross) attributable to 2020 was paid to her on February 18, 2021, after Palazzo completed its final reconciliation of 2020 pre-tax profits. Assuming Shanon’s compensation is otherwise deemed reasonable, how much of it may Palazzo deduct in the taxable year ending December 31, 2020?
A.$ 650,000
B.$ 1,675,000
C.$ 1,490,000
D.$ 1,000,000
