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FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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
Transcribed Image Text:**Understanding Double Taxation in Corporate Dividends (2018)**
Corporations are taxed on their income, and shareholders are taxed on the dividends they receive. What provisions in the tax law reduce this "double tax" burden?
1. **Option A**:
- Dividends received by individuals are taxed at lower rates than other income.
- No tax on dividends in the 10% tax bracket.
- Dividends in the 12% through 35% brackets are taxed at 15%.
- Dividends in the 37% tax bracket are taxed at 20%.
- Eligible corporations can elect to be treated like partnerships ("S corporations"), with income reported by shareholders, not taxed to the corporation.
- Corporations receiving dividends can claim a deduction between 50% and 100% of the dividends, depending on stock ownership.
2. **Option B**:
- No tax law provisions to reduce the "double tax" burden.
- Shareholders are taxed as ordinary income, and corporations receive no tax deduction for payments.
3. **Option C**:
- Dividends received by individuals are taxed at lower rates than other income.
- No tax on dividends in the 10% through 35% tax brackets.
- Dividends in the 37% tax bracket taxed at 15%.
- Eligible corporations can elect to be treated like partnerships ("S corporations"), with income reported by shareholders and not taxed to the corporation.
- Corporations receiving dividends can claim a deduction between 25% and 100%, depending on stock ownership.
4. **Option D**:
- Dividends received by individuals are taxed at lower rates than other income.
- No tax on dividends in the 10% and 12% tax brackets.
- Dividends in the 22% through 35% brackets taxed at 15%.
- Dividends in the 37% tax bracket taxed at 20%.
- Eligible corporations can elect to be treated like partnerships, with similar provisions as "S corporations."
- Corporations receiving dividends can claim a deduction between 50% and 100%, depending on stock ownership.
This information helps clarify how tax laws aim to alleviate the impact of double taxation on corporate dividends, particularly through varied taxation strategies and possible deductions.
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