Question

Explain the role that earnings and profits play in determining the tax treatment of distributions. Describe the tax treatment of dividends for individual shareholders. Find an example of a corporation that has a dividend program and share their approach. Be sure to choose a company that is different from your classmates.

Answer 1

Explain the role that earnings and profits play in determining the tax treatment of distributions. Describe the tax treatment of dividends for individual shareholders. Find an example of a corporation that has a dividend program and share their approach. Be sure to choose a company that is different from your classmates.

Answer:-

Lets take this inquiry in little peices/. First of ll -

The job that income and benefits play in deciding the duty treatment of disseminations Earnings and benefits speaks as far as possible on profit sum perceived on corporate appropriations. Likewise the company's capacity to stay aware of the desire for the people regarding the dividend installments without impairing the capital. We reach the source of the dividend by making net adjustments in the taxable income.Certain non deductible items will be added back say related party and capital loss, fines and penalties etc. Certain methods are there to be followed while calculating the Earning and profits.

Accumulated profits and current year's profits.

Taxability of corporate distributions depends on how current and accumulated E & P are allocated to each distribution made during the year.Distributions will be made from current year profitsand then the accumulated E and P will be considered

Describe the tax treatment of dividends for individual shareholders?

For tax purpose- Dividend are catagorised as Qualified or non qualified

Qualified dividends are: • Tax-free for those with taxable income falling within the 10% and 15% brackets to the extent qualified dividend income remains within those brackets • Taxed at a 15% rate for those with taxable income falling within the 25% up to 39.6% tax brackets • Taxed at a 20% rate for higher income taxpayers whose taxable income exceeds the 39.6% tax bracket

Nonqualified dividends are taxed at the same rates as ordinary income (currently a 39.6% maximum).

Please note capital gains are treated ifferent for tax on dividend.

Find an example of a corporation that has a dividend program and share its approach -

We are capturing the example for APPLE INC.

Apple has been paying its shareholders a dividend about a month and a half after the end of each fiscal quarter ever since it declared its modern dividend plan in the summer of 2012.

The May dividend will be the fourth to occur since the company issued a 7-for-1 stock split. That split also converted the dividend from $3.29 per share to 47 cents per share.

Apple just announced plans to increase its May dividend from 47 cents to 52 cents per share during its Q2 earnings conference call.

Since the stock split, Apple repurchased a surprising $17 billion of its own stock in the September quarter; $5 billion of stock in open market purchases during its December quarter (Apple's Fiscal Q1 2015); and another $7 billion of stock in open market purchases during its March quarter (Apple's Fiscal Q2 2015).

The organization currently has 5.761 billion offers remarkable. Since the start of 2014, Apple shares are up 59.2 percent, contrasted with Microsoft's 27.98 percent gain or Google's 3.43 percent decrease in nonvoting GOOG C class shares and 1.61 percent misfortune in standard GOOGL A class shares.

Since the start of 2015, Apple shares are up 16.51 percent, compared to Microsoft's 2.06 percent gain or Google's 2.79 percent gain in nonvoting GOOG C class shares and 4 percent gain in standard GOOGL A class shares. Google split its offers into the two classes and granted financial specialists one of each, adequately stripping speculators of a large portion of their casting a ballot rights through the "profit" weakening.

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