The Relevant Information about U.S. Corporation Dividends
Q: |
What is a Dividend? |
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A: |
A dividend is a corporate distribution to a shareholder out of current or accumulated earnings and profits (E&P). Dividends first come from current earnings and profits, then out of accumulated earnings and profits once the former are exhausted. Therefore, a corporation can have negative accumulated E&P, but have positive current E&P and still pay a dividend.
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Q: |
How to compute earnings and profits? |
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A: |
The computation of E&P starts with a corporation’s taxable income. Earning and profits seek to define what a corporation has left after expenses and taxes to distribute to its shareholders. Therefore, certain expenses that are not deductible on taxable income are deductible when computing E&P, and some incomes that are exempt taxable income are included in E&P. Depreciation is a deduction in determining E&P, but straight-line is required under U.S. code §312(k)(1).
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Q: |
Does a corporation require to report dividend distribution to IRS? |
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A: |
Yes, a corporation requires to file Form 1099-DIV when there is a dividends distribution. Form 1099-DIV must be filed by January 31 to avoid penalty.
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Q: |
How are dividends taxed for individual?? |
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A: |
In general, dividends received from domestic corporation is considered as qualified dividend. For the tax rate on qualified dividends in 2019, please refer to following tax table.
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Q: |
How are dividends tax if corporations receive dividends from other corporations? |
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A: |
Domestic corporations that receive a dividend from a domestic corporation receive a dividends received deduction. The percentage of deduction is according to the ownership.
• The 50% of dividends received can be deducted if the ownership is less than 20%. • The 65% of dividends received can be deducted if the ownership is between 20% and 79%. • The 100% of dividends received can be deducted if the ownership is more than or equal to 80%. |