Question

You are a shareholder in a C corporation. The corporation earns $1.55 per share before taxes. Once it has paid taxes, it will distribute the rest of its earnings to you as a dividend. The corporate tax rate is 21%, and your personal tax rate on (both dividend and non-dividend) income is 20%. How much is left for you after all taxes are paid?

A. $0.975
B. $1.232
C. $1.254
D. $1.356

Answer 1

The amount left for you as a shareholder in a C corporation after all taxes are paid is $0.975

Step-by-step explanation:

To calculate the amount left for you after all taxes are paid, you need to first calculate the taxes paid by the corporation and then the taxes paid by you as the shareholder on the dividend income. The corporation earns $1.55 per share before taxes. The corporate tax rate is 21%, so the taxes paid by the corporation would be 21% of $1.55, which is $0.3255. The remaining amount after taxes paid by the corporation is $1.55 - $0.3255 = $1.2245.

As a shareholder, you need to pay taxes on the dividend income. The personal tax rate on dividend income is 20%. So, the taxes paid by you would be 20% of $1.2245, which is $0.2449.

The amount left for you after all taxes are paid would be $1.2245 - $0.2449 = $0.9796. Therefore, the correct answer is A. $0.975.