What is meant by the term "double taxation" as applied to the corporate form of business...

What is meant by the term "double taxation" as applied to the corporate form of business organization?

Question 6 options:

A)	Corporate income is taxed, and then shareholders are taxed on the corporate dividends they receive.

B)	Corporations pay both income tax and sales taxes on their goods.

C)	Corporate income is taxed at twice the rate of partnership income.

D)	Corporations pay both Federal income tax and state income tax on their earnings.

Expert Solution

Answer:

A)Corporate income is taxed, and then shareholders are taxed on the corporate dividends they receive.

As Corporations are deemed to have separate legal existence, distinct from its shareholders, they are required to pay income -tax on their earnings ,that are assessed as taxable income, from carrying on their business.

The corporations pay dividends to their shareholders, out of the above after-tax income--- which is again taxed at the sahreholders' hands at their respective income-tax rate.

This is called double-taxation , with respect to corporate form of business organisation.

Income tax is paid , two times, on the same income , both corporate & personal level.

Other forms of business organisations such as ,

Sole proprietorships & partnerships

pay tax on their business income only once , at the hands of the owner or the partners.

All the other options are not termed Double Taxation.

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What is meant by the term "double taxation" as applied to the corporate form of business...

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