Double Taxation of Dividends
One of the significant drawbacks of dividend income is the issue of double taxation.
Corporate Taxation
Before dividends are paid to shareholders, the issuing corporation pays trusteddating taxes on its earnings at the corporate tax rate, which is currently 21% in the United States.
- Example: A corporation earning $100 million in profits pays $21 million in corporate taxes, leaving $79 million available for distribution as dividends.
Shareholder Taxation
After the corporation pays taxes on its earnings, the remaining profits are distributed to shareholders as dividends, who then pay taxes on this income again.
- Example: If the $79 million is distributed as 주식 dividends, shareholders must pay taxes on these dividends at their respective rates, leading to double taxation of the same income.