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

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

Quizplus · Accepted Answer

Explanation: Method b avoids double taxation by taxing the shareholder directly on their share of the profits, while method c avoids double taxation by allowing dividends and capital gains to be tax-free for individuals.

Consider the Following Methods of Taxing a Corporation's Income