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Tax issues for bonuses in a seasonal businessIn January, Don and Steve each invested $ 100,000 of cash to
form a corporation to conduct business as a retail golf equipment store. On
January 5, they paid Bill, an attorney, to draft the corporate charter, file the
necessary forms with the state, and write the bylaws.They leased a building and began to acquire inventory,
furniture, display equipment, and office equipment in February. They hired a
sales staff and clerical personnel in March and conducted training sessions
during the month.They had a successful opening on April 1, and sales
increased steadily during the summer months. The weather turned cold during
October, and all local golf courses closed October 15, which resulted in a
significant decline in sales. Don and Steve expect business to be very good
during the Christmas season and then to decline during from January 1 to
February 28.
The corporation accrued bonuses to Don and Steve on December
31, payable on April 15 of the following year. The corporation hired a
bookkeeper during February, but he does not know much about taxation. Don and
Steve have hired you as a tax consultant and have asked you to identify the tax
issues they should consider.