Sophie is the sole shareholder and president of Green Corporation. She feels that she can justify at least a $200,000 bonus this year because of her performance. However,rather than a bonus in the form of a salary,she plans to have Green pay her a $200,000 dividend. She believes this is preferable because it will be taxed at only 15% (her marginal rate is 39.6%). Her CPA suggests a $300,000 bonus in lieu of the $200,000 (Green Corporation is in a 34% tax bracket).Should Sophie take the $200,000 dividend or the $300,000 bonus? Support your answer by computing the after-tax cost of the two alternatives to Green and to Sophie.

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The Answer of Sophie is the sole shareholder and president of Green Corporation. She feels that she can justify at least a $200,000 bonus this year because of her performance. However,rather than a bonus in the form of a salary,she plans to have Green pay her a $200,000 dividend. She believes this is preferable because it will be taxed at only 15% (her marginal rate is 39.6%). Her CPA suggests a $300,000 bonus in lieu of the $200,000 (Green Corporation is in a 34% tax bracket).Should Sophie take the $200,000 dividend or the $300,000 bonus? Support your answer by computing the after-tax cost of the two alternatives to Green and to Sophie.

Sophie Is the Sole Shareholder and President of Green Corporation