Gerald Kramer
The AZ CPA
4531 N 16th St
Suite 126
Phoenix, AZ 85016
(602) 264-9331
Fax: (602) 279-1766
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Explanation of Dividend Proposal
"The goal of the President's proposal is to end the double tax. The basic mechanism is exclusion of dividends for shareholders paid out of earnings on which the corporation has paid tax. To avoid a new bias against retaining earnings, the President's proposal includes an adjustment to shareholders' stock basis that reflects retained earnings.
The company on the basis of the tax liability it reports on its tax return determines the tax-free dividend. The earnings on which the company has paid tax are determined on the basis of a 35% tax rate. That amount less the tax paid is the amount that company can distribute to shareholders tax free, and it is distributed on a proportionate basis. If the company chooses to retain some of the taxed earnings, the company will advise shareholders of the amount by which they might adjust their stock basis.
The calculation of the previously taxed earnings will be based on the most recent tax return filed by the company before the year begins. Any subsequent adjustments to the tax return will be reflected in the calculation of taxed earnings at the time of the adjustment, and not retroactively. This will give companies and shareholders certainty about the tax-free status of the dividends at the time the dividend is paid."
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