Rover Corporation would like to transfer excess cash to its sole shareholder, Aleshia, who is...
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Rover Corporation would like to transfer excess cash to its sole shareholder, Aleshia, who is also an employee. Aleshia is in the 24% tax bracket, and Rover is subject to a 21% rate. Because Aleshias contribution to the business is substantial, Rover believes that a $25,000 bonus in the current year is reasonable compensation and should be deductible by the corporation. However, Rover is considering paying Aleshia a $25,000 dividend because Aleshia's tax rate on dividends (15%) is lower than her ordinary tax rate on compensation.
1. Assuming that Rover has taxable income of $25,000 before considering the above. What is the corporate income tax and the individual income tax if a $25,000 bonus is paid? 2. Assuming that Rover has taxable income of $25,000 before considering the above. What is the corporate income tax and the individual income tax if a $25,000 dividend is paid?
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