Friends Jackie (0.5 percent owner), Jermaine (1 percent owner), Marlon (2 percent owner), Michael (86 percent owner),

Friends Jackie (0.5 percent owner), Jermaine (1 percent owner), Marlon (2 percent owner), Michael (86 percent owner), and Tito (10.5 percent owner) are shareholders in Jackson 5 Inc. (an S corporation). As employees of the company, they each receive health insurance ($10,000 per year benefit), dental insurance ($2,000 per year benefit), and free access to a workout facility located at company headquarters ($500 per year benefit). What are the tax consequences of these benefits for each shareholder and for Jackson 5 Inc.?

Expert Solution

Shareholders who own less than 2% stock i.e. Ja (0.5%), Je (1%) and Ma (2%) will enjoy tax free fringe benefits. Shareholders who own more than 2% stock i.e. M (86%) and T (10.5%) will have to pay tax on value of health insurance and dental insurance benefit worth $10,000 and $5,000 respectively. However, no tax will have to be paid on workout facility worth $500 located at company headquarters.

J5 Inc., an S corporation will be allowed to claim deduction for fringe benefits provided to its shareholders.

Junaid answered 2 years ago

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