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24 March, 00:48

You own 100 shares of a "C" corporation. The corporation earns $4.00 per share before taxes. Once the corporation has paid any corporate taxes that are due, it will distribute the rest of its earnings to its shareholders in the form of a dividend. If the corporate tax rate is 20% and your personal tax rate on (both dividend and non-dividend) income is 20%, then how much money is left for you after all taxes have been paid?

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  1. 24 March, 00:59
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    Answer: $320

    Explanation:

    Given the following;

    Number of shares = 100

    Earning per share = $4

    Corporate tax rate = 20%

    Individual tax rate (dividend and nin-dividend) = 20%

    Income accrued by shareholders of a corporation are subjected to double taxation, first is the corporate tax paid by the corporation and then the personal tax paid individually after shareholders have received their dividend.

    Total earning = earning per share * number of shares

    Total earning = $4 * 100 = $400

    Personal tax rate of 20% (dividend and non-dividend)

    Tax amount = (20 : 100) * $400

    Tax amount = 0.2 * $400 = $80

    Amount left after taxes = $400 - $80 = $320
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