Question

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

Answer 1

Answer:

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.