16 Oct
2007
16 Oct
'07
1:01 p.m.
J Blaser wrote:
So what exactly is to stop a corporation from writing bylaws that, in
effect, employ each shareholder as a part-time employee who gets paid
their dividend as salary?
Peace... Sridhar
>> Do
stockholder dividends count against profits?
>>
> I do not know the details, but the idea is to take the profit before
> taxes and either shovel them back into the company in some fashion,
> manage to write them off as some sort of loss, and/or let the
> shareholders take it. It is much easier for individual shareholders to
> shelter themselves from taxes, and isolates the tax liability.
Dividends are paid out AFTER all expenses (including taxes) are
otherwise accounted for. Dividends are paid out of profits, not
revenues, if you get my meaning, since the dividend is a distribution of
'net income' to the company's owners, that is, the shareholders. The
company first must pay taxes on its gross income, leaving net income to
be distributed to the shareholders according to the determination of the
board of directors.
Dividends, indeed, are a perfect example of double-taxation. Of course,
YOU have to pay taxes, too, on any dividends that you receive as a
shareholder, thus the 'double-taxation' comment. And dividends are
always considered to be short-term returns, thus are taxed at your
normal tax rate.
As was mentioned, a corporation WANTS to minimize income, trying to
shuffle off as much as possible as an expense, thus minimizing the
taxes, and if these 'expenses' are bonuses to employees (including the
CEO, for sure), well then that can be treated as an expense, before
taxes come into the picture. At least bonuses to employees are only
taxed once, as income to the individual.