The Dividend Received Deduction Term Paper Example | Topics and Well Written Essays - 1250 words

The Dividend Received Deduction - Term Paper ExampleThis paper broadly explores the purpose of dividends received deduction.Dividend moves from one company to another before it reaches an individual taxpayer, who happens to be a shareholder in the receiving company. For example, if there are two corporations, A and B in such a way that B has shares in A then the dividend give be taxed twice before it reaches the final shareholder, who also will be taxed. This means there will be two 35% taxation at the incarnate level and one 23.8% at an individual taxpayer level hence making the real tax to be nearly 68%. This would even be worse when the dividend has to move a long a serial publication of corporations before it reaches the final stockholder. For example, a situation where company A pays dividend to company B who then pays to C that in turn pays them to the individual shareholders.Following the above stated reasons, pertaining to double taxation, dividends are not nonexempt thri ce or more. As a result, dividends received by a company will be 70% tax-free. Rumpf (2011) asserts that this condition holds unless the corporation in question faces disqualification from this privilege due to some reasons. Even so, when decision making an individuals dividend income, it is essential to comprehend or, rather, take into account the relationship between dividend and other taxable partaking such as straddles and constructive sales.The history of dividends received deduction is completely different from that of certain income of nontaxable corporations. Revenue Ruling 104, 1953-1 C.B. 68 fully explores the policy. According to this ruling, the belief that a corporate tax is salaried prior to earnings from which the dividends are distributed supports the credit for dividends earned. In other words, a corporate tax had been nonrecreational on the proceeds that give rise to dividends ahead of the distribution. According to Rakshit and Sarkar (2013), this