Dividends are taxed only once to stockholders. The income taxes the corporation pays are completely different than those paid by stockholders—they are calculated at different rates and under different rules and regulations.
To say that stockholders pay corporate income taxes is at complete odds with the facts. The corporation is well-established as an entirely separate and distinct legal entity. The stockholders do not manage corporate operations or have title to its assets. They are not management and cannot take possession of a pro rata share of corporate buildings or other assets. Stockholders do not declare dividends or run the corporation’s daily operations—they simply own a piece of paper that entitles them to a share of net assets on dissolution and to dividends if corporate management declares any.
It is true the ups and downs in a corporation’s profitability will affect all parties interested in its operations whether they are employees, lenders, taxing authorities or stockholders, but it is not true they are all double-taxed simply because the corporation pays taxes on its income. So, let us therefore hear the end of the myth of the double taxation of dividends. It just doesn’t hold up under any honest study of the facts.
William N. McNairn, CPA
Palos Verdes Estates, California