Jill Meier is the sole owner of Meier Corp., which provides her only source of i
ID: 2721290 • Letter: J
Question
Jill Meier is the sole owner of Meier Corp., which provides her only source of income. Jill has always paid herself entirely by drawing dividends fom her corporation. A friend suggested that as long as she is earning about what she would have to pay someone else to run the business she, she might be better off paying herself a salary omstead of dividends because she would avoid the problem of double taxation. If Jill's company earns $120,000, all of which she will pay to herself, how much will she take home under each method? Assume a corporate tax rate of 25% on both salary and dividend income.
Explanation / Answer
Her net earning under current method
earning after tax= $ 120,000(1-.25)
=$ 90,000
her dividend income 90,000 after paying dividend tax
She takes away home 90,000(1-.25) =67,500
IN case of salary her corporate income after salary =0
Salary after tax she gets 120,000(1-.25)
=90,000
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