Bob is a 35% shareholder and president of Star Corporation, a calendar year C corporation. The board of

directors of Star decided to pay Bob a $75,000 bonus for the current year based on his outstanding performance.

The directors want to pay Bob the $75,000 as salary, but Bob thinks he may want to receive it as a dividend.

REQUIRED: If Bob is in the 37% marginal tax bracket regardless of the treatment of the bonus, answer the

following (support your written answer with calculations, and ignore any employment tax considerations).

a.

From Bob's perspective:

It would be most beneficial for Bob to receive the $75,000 as a (blank)

BECAUSE.

(Answer should specify salary or dividend, should include short written explanation as to why salary or dividend is

preferred, AND MUST include calculation to support written answer).

b.

From Star's perspective:

It would be most beneficial for Star to pay out the $75,000 as a (blank)

BECAUSE... (Answer

should specify salary or dividend, should include short written explanation as to why salary or dividend is preferred,

AND MUST include calculation to support written answer).