Which two statements accurately describe the taxation of dividends and loans?

Question

Quizplus · Accepted Answer

Interest payments on loans are tax-deductible, while dividends are paid out of after-tax earnings and are therefore not tax-deductible. The statement about using dividends to reduce taxable profits is incorrect, as dividends are not considered an expense and do not reduce taxable profits. The statement about preferring equity finance for tax efficiency is also incorrect, as debt financing can be more tax-efficient due to the deductibility of interest payments.

Which Two Statements Accurately Describe the Taxation of Dividends and Loans