An S corporation earns $7.40 per share before taxes.The corporate tax rate is 39%,the personal tax rate on dividends is 15%,and the personal tax rate on non-dividend income is 36%.What is the total amount of taxes paid if the company pays a $5.00 dividend?

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Quizplus · Accepted Answer

An S corporation does not pay corporate taxes; instead, income is passed through to shareholders who pay personal taxes. The dividend is $5.00, taxed at 15%, resulting in $0.75 tax per share. The remaining $2.40 ($7.40 - $5.00) is taxed as non-dividend income at 36%, resulting in $0.864 tax. Total tax per share is $0.75 + $0.864 = $1.614.

An S Corporation Earns $7