Share repurchases have a tax advantage over dividends because

Question

Quizplus · Accepted Answer

Share repurchases are taxed differently than dividends. With dividends, shareholders must pay taxes on the income as soon as they receive it, while with share repurchases, shareholders can delay paying taxes until they sell their shares. Additionally, the discount method may apply to share repurchases, which means that long-term investors may only be taxed on half of their capital gains. Therefore, share repurchases have a tax advantage over dividends. The other choices, dividend payments being tax deductible, share repurchases increasing customer loyalty, and increasing the value of debt, are not correct statements about the tax advantage of share repurchases.

Share Repurchases Have a Tax Advantage Over Dividends Because