Corporations may have a legitimate preference for dividends over capital gains because:
A) capital gains have a 50% tax rate.
B) dividends received by corporations are not taxable.
C) 30% of dividends received by corporations are exempt from taxation.
D) 70% of dividends received by corporations are exempt from taxation.

Question

Quizplus · Accepted Answer

70% of dividends received by corporations are exempt from taxation, meaning that they are only taxed on 30% of the dividend income. This makes dividends a more tax-efficient way for corporations to receive income compared to capital gains, which are taxed at the full rate. Additionally, dividends provide a more steady and predictable stream of income compared to capital gains, which can be more volatile.

Corporations May Have a Legitimate Preference for Dividends Over Capital