Tina would like to recommend to the Board of Directors that four (4) individuals - the President,
Question:
Tina would like to recommend to the Board of Directors that four (4) individuals - the President, the CFO, the VP and the Executive Assistant - each should receive a bonus equal to their annual salary. These four individuals each own 5% of company stock.
Tina tells you that she believes the salaries for each of these individuals are comparable to the salaries paid in the industry. The company regularly pays dividends and will continue to do so. Tina would like your tax advice on these planned bonus payments. She wants your advice on how the company should proceed with respect to these bonus payments.
Is there an IRS rule stating that a company cannot pay more than a certain percentage of salary as bonus? Any IRS regulations restricting bonus payment?
If the company pays bonus won't this be more tax deductible to the company than paying dividends. What are the advantages of paying dividends than bonus?