In this activity, your instructor will assign you to a group with four of your peers. Each of you will research the possible tax consequences of each of the alternative rewards that Bob is considering and you will report your findings back to your group.

Your client, Bob, is the CEO of a corporation that has 12 stockholders who are also the only employees of the business. The corporation operates a boat dealership in Sherman, Texas. The corporation has accumulated earnings and profits of $3,000,000, not including the current year's taxable income, which is expected to be $800,000. No dividends have been paid to stockholders. Bob has been very pleased with the corporation's performance and he wants to reward the stockholders.

Bob is considering paying cash dividends of $10,000 per share or giving each employee a new boat that costs $10,000 and retails for $15,000.

In addition, when talking with Bob, you found that he has a corporate plane that he regularly uses for vacation and that he allows other corporate officers to use for vacation.

Should Bob consider paying a large year-end bonus to each employee instead of declaring dividends? Why or why not? Is there a tax issue that Bob needs to consider when loaning the corporate plane to stockholders for vacations? What actions can Bob take to minimize corporate tax while also providing rewards for stockholders?

Once everyone in the group has reported on the possible tax consequences, build on one another's ideas until, as a group, you have fully fleshed out the advantages and disadvantages of each approach to Bob's situation.

Support your posts with scholarly sources.

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Answer

Discussion Post: Corporation Tax, Bonuses and Dividends

Corporations at times make considerable earnings because of their yearly operations. Consequently, there is cash which should be conveyed to the investors or investors, representatives in wording of dividends or end of year rewards. Such choices on whether to pay dividends or spend end year rewards are not effortlessly touched base at as there are numerous contemplations to be influenced some of which to have an orientation on corporate impose.

Whenever and if Bob pays out the profit in wording of family which is comprehensive of the reward the corporation will guarantee a derivation against its income for the reward paid out and Bob and the investors should pay an individual tax mint on the bonus income got. On the other hand, should Bob choose to pay dividend remuneration, the organization will be required to pay corporate charge on the income earned and the investors will likewise be required to pay individual expense when the returns are disseminated to them as dividends. Paying dividends is the best choice for Bob to his investors as a tax cut exists because of paying dividends as the total corporate and individual expense paid on dividend pay is not as much as the individual tax mint paid on family or reward pay.

Sway ought to know about the tax implications of crediting out the corporate fly to his investors for get-away. As indicated by the Internal Revenue Service any property or administration that an official or representative gets in lieu of or notwithstanding general taxable advantages is an incidental advantage that might be liable to tax collection. On the off chance that a representative, official or family member utilizes the business' flying machine for individual reasons the utilization must be esteemed and in corporate into their taxable wages (Internal Revenue Service, 2005). The valuation will rely upon whether the flight is basically business or individual.

Sway is qualified for take activities to limit the corporate impose paid by the organization. He can take activities, for example, asserting every one of his costs which may even in corporate annuity commitments and expert protection. He ought to likewise make sure to pay himself and his representatives first before shelling out corporation tax (Norris, 2014). families are costs of doing business which diminish the organization's benefit and thusly the corporate tax paid out

References

Internal Revenue Service. (2005, 2 2). Internal Revenue Service. Retrieved 1 6, 2016, from Executive Compensation-Fringe Benefits Audit: https://www.irs.gov

Norris, J. (2014, 9 2). Crunch . Retrieved 1 6, 2016, from How to reduce your corporation tax: https://www.crunch.co.uk

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++Response:Two of the issues that I see in this case are:1.Whether the boats have to be treated at retail or cost (there are arguments both ways) and2.Whether the boats could/should be treated as compensation (debit compensation expense, credit inventory).There are options (it seems there are always options when we're talking taxes :-)I'm sure these are things that everyone will pick up on their own but I want to encourage a deep dive on these issues.Remember my comments in the weekly announcement, we want to consider being aggressive in advising our client.+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++PLEASE GIVE A RESPONSE TO THE RESPONDER........ whether he brings out good points and expand on them.