Rover Corporation would like to transfer excess cash to its sole shareholder, Aleshia, who is also an employee. Aleshia

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Rover Corporation would like to transfer excess cash to its sole
shareholder, Aleshia, who is also an employee. Aleshia is in the
24% tax bracket, and Rover is in the 21% bracket.
Because Aleshia's contribution to Rover’s profit is substantial,
Rover believes that a $128,400 bonus in the current year is
reasonable compensation and should be deductible in full. However,
Rover is considering paying Aleshia a $128,400 dividend because
Aleshia’s tax rate on dividends is lower than the corporate tax
rate on compensation.
Answer the following questions to determine whether Rover is
correct in believing that a dividend is the better choice.
a. Regarding taxes, which would benefit Aleshia the most? The
$128,400 Dividend ✔ because after taxes she would have $ from the
dividend and $ from the bonus.
b. Regarding taxes, which would benefit Rover Corporation the
most? The $128,400 Bonus ✔ because it would save Rover $ in
taxes.
c. Considering the two parties together, which alternative would
provide the most overall tax savings? The $128,400 Bonus ✔ because
when the overall effect to both the corporation and the shareholder
are considered the net tax savings is $