The Blue Corporation, a C corporation, is owned 100% by Tim Morgan and had taxable income in 2019 of $535,000. Tim is also an employee of the corporation. In December 2019, the corporation has decided to distribute$450,000 to Tim and has asked you whether it would be better to distribute the money as a dividend or salary. Tim, a single taxpayer, is in the 37%marginal tax bracket. How would you respond to Blue Corporation? Consider only income taxes for this problem. (Tim's taxable income exceeds $434,550.)LOADING... Calculate the taxes for Blue and Tim under each option. (For the purpose of this analysis, we will only consider the marginal and capital gain rates forTim.Ignore additional taxes imposed on high income taxpayers.) Distributed as dividendDistributed as salaryTaxes for Blue Taxes for Tim Total tax liability Enter any number in the edit fields and then click Check Answer. 1part remaining Clear AllCheck Answer More Info Capital Gains and Dividends Capital gains and losses are assigned to baskets. Five possible tax rates will apply to most capital gains and losses:•Ordinary income tax rates (up to 37% in 2019) for gains on assets held one year or less•28% rate on collectibles gains and includible Sec. 1202 gains•Preferential tax rates for gains on assets held for more than one year and qualified dividends based on the taxpayers taxable income and filing status as shown in the following table:Preferencial RateSingleFiling Jointly*Head of Household0%Up to $39,375Up to $78,750Up to $52,75015%> $39,375 but not over $434,550> $78,750 but not over $488,850> $52,750 but not over $461,70020%Over $434,550Over $488,850Over $461,700 * The corresponding amounts if married filing separately are half of the amounts for filing jointly. The preferential rate is zero for taxable income up to $39,375 if married filing separately. Corporate Income Tax Rates: In a significant change in the corporate tax rate structure, the TCJA revised the corporate tax rates from a graduated rate structure with rates ranging from 15% to 35% to a flat rate of 21%.This revised corporate rate structure applies to tax years beginning after December 31, 2017

When a part of profit is distributed as income, it is called application of income. Hence, the…

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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The Blue Corporation, a C corporation, is owned 100% by Tim Morgan and had taxable income in 2019 of $535,000. Tim is also an employee of the corporation. In December 2019, the corporation has decided to distribute

$450,000 to Tim and has asked you whether it would be better to distribute the money as a dividend or salary. Tim, a single taxpayer, is in the 37%

marginal tax bracket. How would you respond to Blue Corporation? Consider only income taxes for this problem. (Tim's taxable income exceeds $434,550.)

Calculate the taxes for Blue and Tim under each option. (For the purpose of this analysis, we will only consider the marginal and capital gain rates for

Tim.

Ignore additional taxes imposed on high income taxpayers.)

	Distributed as dividend	Distributed as salary
Taxes for Blue
Taxes for Tim
Total tax liability

Enter any number in the edit fields and then click Check Answer.

part remaining

Clear All

Check Answer

More Info Capital Gains and Dividends Capital gains and losses are assigned to baskets. Five possible tax rates will apply to most capital gains and losses:

•	Ordinary income tax rates (up to 37% in 2019) for gains on assets held one year or less
•	28% rate on collectibles gains and includible Sec. 1202 gains
•	Preferential tax rates for gains on assets held for more than one year and qualified dividends based on the taxpayers taxable income and filing status as shown in the following table:

Preferencial Rate	Single	Filing Jointly*	Head of Household
0%	Up to $39,375	Up to $78,750	Up to $52,750
15%	> $39,375 but not over $434,550	> $78,750 but not over $488,850	> $52,750 but not over $461,700
20%	Over $434,550	Over $488,850	Over $461,700

* The corresponding amounts if married filing separately are half of the amounts for filing jointly. The preferential rate is zero for taxable income up to $39,375 if married filing separately.

Corporate Income Tax Rates:

In a significant change in the corporate tax rate structure, the TCJA revised the corporate tax rates from a graduated rate structure with rates ranging from 15% to 35% to a flat rate of 21%.
This revised corporate rate structure applies to tax years beginning after December 31, 2017

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