Rover Corporation would tike to transfer excess cash to its sole shareholder, Aleshia, who is...
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Rover Corporation would tike 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 Aleshia's contribution to the business is substantial, Rover. believes that a $118,800 bonus in the current year is reasonable compensation and should be deductible by the corporation. However, Rover is considering payng Aleshia a $118,000 dividend because the tax rate on dividends is lower than the tax rate on compensation. Answer the following questions to determane whether Rover is correct in believing that a dividend is the better choice. a. Regarding taxes, which would benefit Aleshis the most? The $118,800 becouse after taxes she would have $ from the dridend and 1 from the bonus. b. Regarding taxes, which would benefit Rover Corporation the most? The $25,000 because it would save Rover 1 in taxes: c. Considering the two parties together, which alternative would provide the most overall tax savings? The 5118,800 because when the overall effect to both the corporation and the shareholder are cansidered the net tax savings. is 5
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