Robin corporation would like to transfer excess cash to its


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: Robin corporation would like to transfer excess cash to its
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