Taxation of Dividends

Discussion in 'Taxes and Accounting' started by EricP, Feb 7, 2004.

  1. EricP


    I'm hoping that someone can help me with the following question. The new tax law sharply reduces the taxation on corporate dividends received. My question is whether this reduction applies to dividends (or distributions) paid out by S-corporations?

    For example, I have a small S-corporation that is consistently profitable every year (software and services, no capital gains). Each year I paid myself a modest salary and pay all remaining profits to myself as a distribution (to reduce overall Social Security withholdings). Will this distribution qualify for the reduced dividend taxation under the new law, or does this tax reduction not qualify for distributions from an S-corporation?

  2. Generally pure S-Corp non-dividend distributions of the earnings that are passed thru to the shareholders via the K-1 will remain untaxed -- as they are only taxed one time, via the K-1.

    The new 15% rate generally applies to earnings that will be double taxed: once at the c-corp level and then 15% at the shareholder level.
  3. I’m aware of this post, but I am snowed under now with the workload from the upcoming tax season and I am not able to prepare a response to this question at this time.

    Thank you for your understanding. I invite other participants in this Forum to give their input to the question that was posted so that others may benefit from our collective wisdom.