Choose an example of double taxation using a corporation and shareholder.

A.

During

20182018,

CrimsonCrimson

Corporation generated gross income of

$ 1 comma 500 comma 000$1,500,000

and had ordinary and necessary deductions of

$ 900 comma 000$900,000,

resulting in taxable income of

$ 600 comma 000$600,000.

Based on the corporation tax rate of

2121%,

CrimsonCrimson

would be subject to taxes of

$ 126 comma 000$126,000

($ 600 comma 000$600,000

x

2121%).

Assume the corporation paid a salary to shareholders during

20182018

of

$ 400 comma 000$400,000.

Since the corporation paid the shareholders with a salary instead of dividends, the

$ 400 comma 000$400,000

is part of

CrimsonCrimson

Corporation's deductions and the total tax on

CrimsonCrimson

Corporation's taxable income is

$ 126 comma 000$126,000.

B.

During

20182018,

CrimsonCrimson

Corporation generated gross income of

$ 1 comma 500 comma 000$1,500,000

and had ordinary and necessary deductions of

$ 900 comma 000$900,000,

resulting in taxable income of

$ 600 comma 000$600,000.

Based on the corporation tax rate of

2121%,

CrimsonCrimson

would be subject to taxes of

$ 126 comma 000$126,000

($ 600 comma 000$600,000

x

2121%).

CrimsonCrimson

Corporation paid dividends to shareholders during

20182018

of

$ 400 comma 000$400,000.

The total tax on

CrimsonCrimson

Corporation's taxable income is

$ 126 comma 000$126,000

because it is responsible for all of the taxes and it is not allowed a standard deduction.

C.

During

20182018,

CrimsonCrimson

Corporation generated gross income of

$ 1 comma 500 comma 000$1,500,000

and had ordinary and necessary deductions of

$ 900 comma 000$900,000,

resulting in taxable income of

$ 600 comma 000$600,000.

Based on the corporation tax rate of

2121%,

CrimsonCrimson

would be subject to taxes of

$ 126 comma 000$126,000

($ 600 comma 000$600,000

x

2121%).

Assume the corporation paid dividends to shareholders during

20182018

of

$ 400 comma 000$400,000.

Further assume that the taxable income of the shareholders is such that they pay a tax rate of

1515%

on qualified dividends. The shareholders collectively would have to pay individual income taxes of

$ 60 comma 000$60,000

($ 400 comma 000$400,000

x

1515%)

as the tax rate on qualified dividends is

1515%.

The total tax on the corporation's taxable income of

$ 600 comma 000$600,000,

therefore, would be

$ 186 comma 000$186,000

($ 126 comma 000$126,000

paid by

CrimsonCrimson

Corporation plus

$ 60 comma 000$60,000

paid by the shareholders).

D.

During

20182018,

CrimsonCrimson

Corporation generated gross income of

$ 1 comma 500 comma 000$1,500,000

and had ordinary deductions of

$ 900 comma 000$900,000,

resulting in taxable income of

$ 1 comma 500 comma 000$1,500,000.

Based on the corporation tax rate of

2121%,

CrimsonCrimson

would be subject to taxes of

$ 315 comma 000$315,000

($ 1 comma 500 comma 000$1,500,000

x

2121%).

CrimsonCrimson

Corporation paid dividends to shareholders during

20182018

of

$ 400 comma 000$400,000.

The total tax on

CrimsonCrimson

Corporation's taxable income is

$ 315 comma 000$315,000

because it is responsible for all of the taxes and it is not allowed any deductions from income.