Question

You own 100 shares of a “Sub Chapter “S” corporation. The corporation earns $4.00 per share before taxes. Once the corporation has paid any corporate income 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 40% and your personal tax rate on both dividend and non-dividend income is 30%, then how much money is left for you after all taxes have been paid ?

Answer 1

The money that is left is computed as shown below:

= Earning per share before taxes x (1 - tax rate)

= $ 4 x (1 - 0.40)

= $ 4 x 0.60

= $ 2.40

Money left after paying personal tax is computed as follows:

= $ 2.40 x (1 - 0.30)

= $ 1.68

So, the money that is left will be:

= $ 1.68 x 100 shares

= $ 168

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