An S corporation earns $4.50 per share before taxes.The corporate tax rate is 35%,the personal tax rate on dividends is 20%,and the personal tax rate on non-dividend income is 39%.What is the total amount of taxes paid if the company pays a $2.00 dividend?

Question

Quizplus · Accepted Answer

First, calculate the amount of pre-tax earnings: 
$4.50 per share x 1 share = $4.50

Next, calculate the corporate taxes:
$4.50 x 0.35 = $1.58

The remaining earnings after corporate taxes can be distributed as dividends: 
$4.50 - $1.58 = $2.92

Now, calculate the personal taxes on dividends: 
$2.00 x 0.20 = $0.40

Finally, calculate the total amount of taxes paid: 
Corporate taxes + personal taxes on dividends = 
$1.58 + $0.40 = $1.98

Therefore, the closest answer is D) $1.76.

An S Corporation Earns $4