Consider the following methods of taxing a corporation's income:
A.A flat tax, as opposed to a progressive tax, is levied on corporate profits.
B.A system whereby a corporation calculates its annual profit and notifies each shareholder of her portion of the profits.The shareholder would then be required to include this amount as taxable income for her personal income tax.The corporation does not pay a tax.
C.A system where the federal government continues to tax corporate income through the corporate income tax but allows individual taxpayers to receive, tax free, corporate dividends and capital gains.
Which of the methods above would avoid double taxation?
A)a, b, and c
B)a and b only
C)a and c only
D)b and c only

Question

Quizplus · Accepted Answer

Method (a) would still result in double taxation because the corporation is paying a tax on its profits before the shareholder pays tax on their portion of the profits. Method (b) would avoid double taxation because the corporation is not being taxed and the shareholder is paying tax on their portion of the profits. Method (c) would also avoid double taxation because the corporation is still being taxed but individual taxpayers are not being taxed on corporate dividends and capital gains they receive. Therefore, methods (b) and (c) would avoid double taxation.

Consider the Following Methods of Taxing a Corporation's Income