Dividends, Interest, Rents, and Royalties: Tax Results and Reporting

  1. Dividends

Dividends are payments made by a corporation to its shareholders from current or accumulated earnings.  Dividends can be paid in cash, any other assets, and even in the company’s stock.  The corporation does not get a tax deduction for these payments but the investors must include them in their taxable base in the US.  After earnings and profits are exhausted, the payments are considered a return of capital to the extent of the total basis in the hands of each shareholder.  If distributions exceed the basis, they are considered capital gains. There is a requirement that corporations pay dividends if the accumulated earnings are $250,000 or more and there is no reasonably foreseeable need for this cash.

The US shareholders are taxed at a discounted rate of Read More

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