The Bruin Corporation, a C corporation, is owned 100% by John Bean and had taxable income in 2019 of $500,000. John is also an employee of the corporation. In December 2019,

the corporation has decided to distribute $400,000 to John and has asked you whether it would be better to distribute the money as a dividend or salary. John, a single taxpayer, is in the 37% marginal tax bracket. How would you respond to Bruin Corporation? Consider only income taxes for this problem. (John's taxable income exceeds $434,550.)

Calculate the taxes for Bruin and John under each option. (For the purpose of this analysis, we will only consider the marginal and capital gain rates for John. Ignore additional taxes imposed on high income taxpayers.)

	Distributed as dividend	Distributed as salary
Taxes for Bruin
Taxes for John
Total tax liability

The $400,000 (1) would result in smaller taxes. The tax savings would be even (2) if John were in a (3) tax bracket.

1: More Info

Capital Gains and Dividends

Capital gains and losses are assigned to baskets. Five possible tax rates will apply to most capital gains and losses:

	Ordinary income tax rates (up to 37% in 2019) for gains on assets held one year or less
	28% rate on collectibles gains and includible Sec. 1202 gains
	Preferential tax rates for gains on assets held for more than one year and qualified dividends based on the taxpayer's taxable income and filing status as shown in the following table:

Preferencial Rate	Single	Filing Jointly*	Head of Household
0%	Up to $39,375	Up to $78,750	Up to $52,750
15%	> $39,375 but not over $434,550	> $78,750 but not over $488,850	> $52,750 but not over $461,700
20%	Over $434,550	Over $488,850	Over $461,700

* The corresponding amounts if married filing separately are half of the amounts for filing jointly. The preferential rate is zero for taxable income up to

$39,375 if married filing separately.Corporate Income Tax Rates:In a significant change in the corporate tax rate structure, the TCJA revised the corporate tax rates from a graduated rate structure with rates ranging from 15% to 35% to a flat rate of 21%.

This revised corporate rate structure applies to tax years beginning after December 31, 2017.