2. Suppose Congress is expected to increase the corporate tax rate from 35% to 4

Question

2. Suppose Congress is expected to increase the corporate tax rate from 35% to 45% next year. RealNet.com is scheduled to pay its CEO a salary of $1 million in the current period. The CEO's tax rate is 40%. the CEO is also entitled to a bonus that is up to the discretion of the compensation committee. As an advisor to the compensation committee, compare and contrast the following tax-planning strategies.
a. Do Nothing
b. Defer a large part of the salary ($300,000) from the current period to the next period.
c. Defer the bonus from the current period to the next period.

Explanation / Answer

a. Do Nothing - Will have to pay higher taxes in the next period b. Defer a large part of the salary ($300,000) from the current period to the next period. - Will help in saving taxes c. Defer the bonus from the current period to the next period - Will hugely help in saving taxes

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