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13-28 (Algorithmic) (LO. 5) Rover Corporation would like to transfer excess cash to its sole shareholder, Aleshia, who is also an employee. Aleshia is in
13-28 (Algorithmic) (LO. 5) 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 in the 21% bracket. Because Aleshia's contribution to Rover's profit is substantial, Rover believes that a $51,600 bonus in the current year is reasonable compensation and should be deductible in full. However, Rover is considering paying Aleshia a $51,600 dividend because Aleshia's tax rate on dividends is lower than the corporate tax rate on compensation. Answer the following questions to determine whether Rover is correct in believing that a dividend is the better choice. a. Regarding taxes, which would benefit Aleshia the most? The $51,600 because after taxes she would have $ the bonus. b. Regarding taxes, which would benefit Rover Corporation the most? The $51,600 because it would save Rover $ from the dividend and $ from in taxes. c. Considering the two parties together, which alternative would provide the most overall tax savings? The $51,600 because when the overall effect to both the corporation and the shareholder are considered the net tax savings is $
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