"Double taxation" refers to:

Question

Quizplus · Accepted Answer

Double taxation refers to the situation where a corporation is taxed on its profits (at the corporate tax rate) and then those profits are distributed to shareholders as dividends, which are then taxed again at the shareholders' personal tax rate. This results in the profits being taxed twice, hence the term "double taxation". Option A is incorrect because partners in a partnership are taxed individually on their share of the partnership's profits, not equally. Option B is incorrect because corporations are only taxed once on their profits, either at the corporate level (if they pay out no dividends) or at the individual level (if they pay out dividends). Option D is incorrect because marginal tax rates are not doubled for corporations, as the corporate tax rate is a flat rate and does not depend on the level of profits earned.

"Double Taxation" Refers To