Which of the following statements is true regarding c corporation dividend distributions?

A. the dividend distributions are taxed at the entity level.

B. the dividend distributions are taxed at the individual shareholder level only.

C. the dividend distributions are not taxed because the income was already taxed at the entity level.

D. the dividend distributions are taxed first at the time they are calculated at the entity level and then also taxed at the individual shareholder level.

Question

Business

Lawson Chapman

14 August, 14:55

Which of the following statements is true regarding c corporation dividend distributions?

A. the dividend distributions are taxed at the entity level.

B. the dividend distributions are taxed at the individual shareholder level only.

C. the dividend distributions are not taxed because the income was already taxed at the entity level.

D. the dividend distributions are taxed first at the time they are calculated at the entity level and then also taxed at the individual shareholder level.

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Answers (1)

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Trace Walter · Answer 1

C corporation dividend distributions are taxed first at the time they are calculated at the entity level and then also taxed at the individual shareholder level.

Option: (D)

Explanation:

When the dividend is at the entity level, it is deemed to be as the profit gained by the corporation. Hence, the corporation is bound to pay the corporate income tax of 21% on the entire amount of dividends. Once the dividend is distributed among the shareholders after initial taxation, it becomes income for the shareholders. Thus, shareholders also need to pay the income tax.