Question

Troy is the sole shareholder and CEO of BQT. BQT is a very profitable S corporation. Until recently, Troy’s salary was in line with the salaries of comparable CEOs. However, Troy recently learned that he could reduce his tax burden, if he were to reduce his salary. By lowering his salary Troy would receive less employee compensation that is subject to FICA tax and is not eligible for the qualified business income deduction, and he would be allocated more business that is not subject to FICA tax and qualifies for the qualified business income deduction. After considering the potential benefits, Troy decided to cut his salary in half. Do you think Troy’s decision is ethical? Why or why not?

Answer 1

Troy's idea on reducing the tax burden by reducing the salary is an idea to become richer by cheating the system which in opinion Troy’s decision is unethical. The salary of the Troy should be in line with what the corporation makes in the way of profits and how much time and skills Troy really invests with his company as a CEO deserve a reward for him for the efforts. As CEO Troy need to think about passing an increase to the employees in a way of salary or fringe benefits. To mitigate the double tax there are many another approach as well such as providing the fringe benefits to employees such as health insurance, dependent care, term life insurance, and tuition benefits. Also the avoid taxation corporation can lease property and can deduct legally the lease expense.