A firm that owns the stock of another corporation does not have to pay
taxes on the entire amount of dividends received. In general, only 30
percent of the dividends received by one corporation from another are
taxable. The reason for this tax law feature is to mitigate the effect of
triple taxation, which occurs when earnings are first taxed at one firm,
then its dividends paid to a second firm are taxed again, and finally the
dividends paid to stockholders by the second firm are taxed yet again.
Assume that a firm with a 35 percent tax rate receives $100,000 in
dividends from another corporation. What taxes must be paid on this
dividend, and what is the after-tax amount of the dividend?
Hmmmm. I will answer this as a math question. I do not agree with the premise stated whatsoever, in fact it is mostly untrue.
assume first layer getting dividends gets 100,000 dollars, 30,ooo is removed.
The second layer gets 70,000, and .35*70000= 24550 is removed.
after tax: 65,000-24550=45500 dollars
Please think on this: A company earns money, and pays taxes like all of us individuals. The company then takes its after tax revenue, and distributes it to its owners. To the owners, it is revenue, and it is taxed again.
Now with partnerships, it is quite different.
Say you own BX, which each shareholder is a partner. Each partner gets a earnings report, pro rata. Each partner then pays tax on those earnings.
Sounds great....but,...Then figuring the taxes is not simple. Each partner has to essentially fill in all the company expenses, accounting tricks, et al, and fill in a mini version of the company tax paperwork, and this is not something ordinary folks can do, each partner then has to have their own accountant....
If life were simple.
How did you get the 65,000? Bobpursley
According to the tax law feature mentioned, only 30 percent of the dividends received are taxable. Therefore, out of the $100,000 dividend received, only 30 percent ($100,000 * 0.30) is taxable.
The taxable amount of the dividend is $30,000.
Now, considering that the firm's tax rate is 35 percent, we can calculate the taxes that must be paid on the dividend.
Tax liability = Tax rate * Taxable amount
Tax liability = 0.35 * $30,000
The taxes to be paid on this dividend amount to $10,500.
To find the after-tax amount of the dividend, we subtract the tax liability from the dividend received.
After-tax amount = Dividend - Tax liability
After-tax amount = $100,000 - $10,500
Therefore, the after-tax amount of the dividend is $89,500.
To determine the taxes paid on the dividend and the after-tax amount, we need to understand the tax law feature mentioned in the question. According to the information provided, only 30 percent of the dividends received by one corporation from another are taxable.
First, we calculate the taxable amount of the dividend. Since 30 percent is taxable, we multiply the dividend amount ($100,000) by 30 percent:
Taxable amount = $100,000 x (30/100) = $30,000
Next, we need to determine the taxes that must be paid on the taxable amount. The tax rate of the firm is given as 35 percent. So, we multiply the taxable amount by the tax rate:
Taxes paid on dividend = $30,000 x (35/100) = $10,500
Finally, we can calculate the after-tax amount of the dividend by subtracting the taxes paid from the original dividend amount:
After-tax amount of dividend = $100,000 - $10,500 = $89,500
Therefore, the taxes paid on this dividend amount to $10,500, and the after-tax amount of the dividend is $89,500.