What is Double Taxation for Corporations and how does it work.

Question

What is Double Taxation for Corporations and how does it work.

Answer 1

Let's say a corporation earned $1 million in profit.  It pays tax on that profit.

Because it is a corporation, it has owners / shareholders.  If the corporation decides to distribute all $1 million to its shareholders, those persons pay income tax on that money.

Therefore, the $1 million in profits is taxed twice: once when earned by the corporation and once when passed on to the shareholders.

Answer 2

It isn't double taxation for corporation, it's double taxation of income.  It is where the corporation pays income tax on its income then distributes part of it as dividends that are taxed again to the stockholder.