Preferred stock dividends are tax-deductible to the corporation, and also provide tax advantages to the corporate investor.

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While preferred stock dividends are not tax-deductible to the corporation, as would be true with interest on bonds, they do offer certain investors unique tax advantages. The tax law provides that any corporation that receives preferred or common stock dividends from another corporation must add only 30% of such dividends to its taxable income. Thus, if a $5 dividend is received, only 30% of the $5, or $1.50, would be taxable to the corporate recipient.

Preferred Stock Dividends Are Tax-Deductible to the Corporation, and Also