A low tax bracket individual can enhance the avoidance of income taxes through a C corporation by having the corporation retain its after tax earnings rather than paying them out as a dividend.

Question

Quizplus · Accepted Answer

A C corporation pays corporate income tax on its earnings, and if those earnings are then distributed as dividends, the shareholders pay taxes on those dividends at their personal tax rates, leading to double taxation. Retaining earnings in the corporation avoids immediate double taxation but does not enhance tax avoidance for the individual shareholder, as the retained earnings are still taxed at the corporate level.

A Low Tax Bracket Individual Can Enhance the Avoidance of Income