Question
John, whose marginal tax rate on additional earnings is 35% percent on ordinary income and 15% percent on dividends, is the sole owner of the
John, whose marginal tax rate on additional earnings is 35% percent on ordinary income and 15% percent on dividends, is the sole owner of the stock in Premton Corporation. The corporation earned $1.2 million for calendar year 2020 before these items:
Salary to John ($15,000 monthly): $180,000
Tax preferred benefits to John (Medical, etc.): $70,000
The corporate tax rate is a flat 21% percent.
Write a short memo to John explaining the tax advantages/disadvantages of the salary and benefits and whether John should considering increasing or decreasing the salary and/or the fringe benefits.
How is any change in these amounts the result of shifting tax consequences? Explain.
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