Corporate Distributions & Compensatoin
Corporate Distributions & Compensatoin Facts Justin is a single taxpayer with no dependents, who owns IMC, Inc. (a C corporation). Both entities use the calendar year and cash basis for tax reporting purposes. Based on year-end tax planning for 2014, the corporation expects to earn taxable income (before paying Justin's salary) of $300,000. The corporation plans to pay 60% of that amount as compensation to Justin, in some combination of salary and dividend. Justin has ordinary taxable income from other sources of $50,000. Issue How should Justin's compensation package be allocated between salary and dividend? Use only three alternatives in your analysis: #1 #2 #3 Salary 0% 50% 100% Dividends 100% 50% 0% Authorities IRC §1 imposes a tax on an individual's taxable income while IRC §11 imposes a tax on a corporation's taxable income. In addition, §§3101 and 3111 impose taxes under the Federal Insurance Contributions Act on employees and employers, respectively.