What is double taxation?
A. Double taxation occurs when a C corporation’s profits are taxed at both the entity and individual levels. Profits of the business are reported and taxed at the entity level first. Then, if the C corporation distributes any part of the remaining profits to the shareholders in the form of dividends, the shareholders must report the dividend as personal income and pay taxes on it at the individual level. To avoid double taxation, many business owners choose to make a special election with the IRS to become an S corporation.
Double taxation occurs when a taxpayer is taxed twice for the same asset or income. This happens when taxing jurisdictions overlap and a transaction, asset, or income amount is subject to taxation in both jurisdictions. When an individual must deal with double taxation, he or she may lose a significant portion of income. In some cases, this may cause the double-taxed individual to experience a lowered standard of living. Corporations deal with double taxation too, as a corporation pays taxes on its earnings only to have its shareholders taxed once more. Opponents of double taxation assert that it is damaging to the economy. They state that double taxation imposes unfortunate consequences for those who choose to save and invest. Opponents of double taxation often argue that eliminating it, in all its forms, will spur the economy on, leading to an increase in jobs, improved salaries, and much better living standards. Some people argue that double taxation of corporations isn’t really a p
In this audio snippet, you’ll hear about: • Does not happen as frequently as everybody thinks it does • History of double taxation, and how it has evolved over the years • For the average small business, double taxation should not be an issue provided they make the S Corp election or file LLC – it’s mainly for C Corporations to worry about
