If a corporation makes $100,000 in profit, how will that profit be taxed if the money is all distributed to the owners?
A) $100,000 will be taxed at the individual tax rate of each owner.
B) $100,000 will be taxed at the corporate rate only.
C) $100,000 will be taxed at the corporate rate; then those after-tax profits will be taxed again as dividends when distributed to each owner.
D) $100,000 will be taxed at the corporate rate; then those after-tax profits will be taxed again at the corporate rate when distributed to each owner.

Question

Quizplus · Accepted Answer

When profits are distributed to the owners, they are considered dividends and are taxed at the individual tax rate of each owner. However, before being distributed, the profits are first taxed at the corporate rate, so they are effectively taxed twice - once at the corporate level and once at the individual level. This is known as double taxation, and it is a major criticism of the corporate tax system.

If a Corporation Makes $100,000 in Profit, How Will That