Robin corporation would like to transfer excess cash to its, Ask an Expert

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Robin Corporation would like to transfer excess cash to its sole shareholder, Adam, who is also an employee. Adam is in the 28% tax bracket, and Robin is in the 34% bracket. Because Adam's contribution to the business is substantial, Robin believes that a $25,000 bonus in the current year is reasonable compensation and should be deductible by the corporation. However, Robin is considering paying Adam a $25,000 dividend because the tax rate on dividends is lower than the tax rate on compensation. Is Robin correct in believing that a dividend is the better choice? Why or why not?

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Financial Accounting, Accounting

Category:- Financial Accounting
Reference No.:- M91525480

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