What are dividends and how are shareholders who receive dividends taxed?
A dividend is a distribution of cash or property by a corporation to a shareholder paid out of the corporation’s current or accumulated earnings and profits. Although Congress has not provided a comprehensive definition of earnings and profits, it is essentially an economic measure of a corporation’s ability to pay dividends without distributing any of the capital contributed by either its shareholders or creditors. Earnings and profits include all items of income, gains, losses, and deductions resulting from the economic activities of the corporation since the later of the date of the corporation’s inception or February 28, 1913 (the date the federal income tax was enacted).
A dividend is a distribution of cash or property by a corporation to a shareholder paid out of the corporation’s current or accumulated earnings and profits. Although Congress has not provided a comprehensive definition of earnings and profits, it is essentially an economic measure of a corporation’s ability to pay dividends without distributing any of the capital contributed by either its shareholders or creditors. Earnings and profits include all items of income, gains, losses, and deductions resulting from the economic activities of the corporation since the later of the date of the corporation’s inception or February 28, 1913 (the date the federal income tax was enacted). In order to determine if a distribution is a dividend, distributions to shareholders are first deducted from current earnings and profits and then from accumulated earnings and profits. If the amount of the distribution exceeds both current and accumulated earnings and profits, the distribution will not be taxed a
