Final answer:
Corporations are typically subject to double taxation, which means that both the business itself and the dividends paid to shareholders are taxed. This can result in a higher overall tax burden for corporations and their shareholders.
Step-by-step explanation:
In the context of business, corporations are typically subject to double taxation. This means that the business itself is taxed on its profits, and the dividends paid to shareholders are also taxed as the shareholders' personal income. This can result in a higher overall tax burden for corporations and their shareholders.
For example, let's say a corporation earns a profit of $100,000. The corporation will be taxed on this amount at the corporate tax rate. If the tax rate is 30%, the corporation will owe $30,000 in taxes. If the corporation then pays out a dividend of $50,000 to its shareholders, the shareholders will also be taxed on this amount as part of their personal income. If the tax rate for individuals is 25%, the shareholders will owe $12,500 in taxes on the dividend income. So, in total, the corporation and its shareholders will have paid $42,500 in taxes on the $100,000 profit.