Nancy is a 40% shareholder and president of Robin Corporation, a calendar year C corporation. The board of directors of Robin has decided to pay Nancy a $75,000 bonus for the current year based on her outstanding performance. The directors want to pay the $75,000 as salary, but Nancy would prefer to have it paid as a dividend. If Nancy is in the 37% marginal tax bracket regardless of the treatment of the bonus, discuss which form of payment would be most beneficial for each party. (Ignore any employment tax considerations.)

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The Answer of Nancy is a 40% shareholder and president of Robin Corporation, a calendar year C corporation. The board of directors of Robin has decided to pay Nancy a $75,000 bonus for the current year based on her outstanding performance. The directors want to pay the $75,000 as salary, but Nancy would prefer to have it paid as a dividend. If Nancy is in the 37% marginal tax bracket regardless of the treatment of the bonus, discuss which form of payment would be most beneficial for each party. (Ignore any employment tax considerations.)

Nancy Is a 40% Shareholder and President of Robin Corporation