Question

Jay owns 100% of Kaye Company. Jay (an individual) is in the 37% tax bracket. Assume that Kaye Company is a corporation and distributes $50,000 cash to Jay as a dividend. How much tax must Jay pay on this $50,000 dividend

Answer 1

$10,000 as qualified dividends

Step-by-step explanation:

As this is in the form of dividends we assume the business is a corporation therefore their dividends are taxed as well.

As Jay is the sole owner of Kaye Company we have to assume their dividends are qualified as were held during the entire 121-days period

Therefore are subject to his capital gains rate rather than his rate of 37%

According to the IRS table for the year 2020:

Income Tax Bracket Income Tax Rate Capital Gains Rate

$0 – $9,875 10% 0%

$9,876 – $40,000 12% 0%

$40,001 – $40,125 12% 15%

$40,126 – $85,525 22% 15%

....

$518,401+ 37% 20%

Thus the $50,000 qualified dividends will be taxes at 20%

50,000 x 20% = 10,000