The biggest gripe, however, from employers is the 10% tax on dividends earned by pension schemes, which was imposed by the chancellor shortly after the present government was elected in 1997.
Capital gains, dividends and earned interst would be tax free.
Capital gains, dividends and earned interest would be tax free.
Assume further that interest and dividends are earned in the activity and are either allocated to you on a Schedule K-1 (in the case of an S corporation or partnership) or reported by you on Schedule C (in the case of a sole proprietorship).
FORBES: Overview Of The New 3.8% Investment Income Tax, Part 1
With the same rate on both forms of income, the tax code doesn't bias corporate decisions on whether to retain and reinvest profits (and allow the earnings to be capitalized into the stock price), or distribute the money as dividends at the time they are earned.
Dividends is real way to transfer company earned profits to shareholder accounts.
My hunch is that at current tax levels, a higher tax on earned income, and perhaps dividends would increase the tax take but by much less than the percentage increase in the tax rates.
As we discussed in Part 1, interest and dividends and other investment type income is not earned in the ordinary course of say, a dental practice.
FORBES: Overview Of The New 3.8% Investment Income Tax, Part 2: Passive Activities
Long-term capital gains and qualified dividends are taxed at lower rates than interest earned on a bank account (if any these days) or wages from a job.
FORBES: Marginal Tax Rates Matter More Than Average Tax Rates
In the 1940s, dividends comprised 74% of the total returns investors earned on stocks and 40% for the 1950s, according to Strategas.
Despite the heated rhetoric emerging out of Delhi, India's restraint on the ground in both situations earned it sympathy internationally - delivering diplomatic dividends.
Given that the overwhelming number of Americans have earned income instead of living off of dividends or interest, it is fair to say that this 2% payroll tax was an immediate boost to working families.
Because the majority of income earned by a private equity fund is dividends and long-term capital gains both of which are currently subject to a preferential 15% tax rate these service partners can effectively convert what many believe should be ordinary compensation income taxed at 35% into investment income taxed at a mere 15%.
FORBES: President Obama Releases Agenda For A Potential Second Term: Dissecting the Tax Aspects
It may be politically incorrect to say so out loud, but higher taxes on capital gains and dividends, the latter to the same rate level as earned income, would be particularly destructive.
The IRS first taxes profits earned by a corporation, and again taxes the proportion of profits distributed as dividends.
FORBES: With His Tax Proposals, Warren Buffett Flunks Economics 101
Before the Bush tax cut, dividends labored under a heavy handicap--they were taxed twice: once when the company earned the money, a second time when the dividend passed into the hands of the investor.
Ares Capital has earned investors a 10% annual return over the last 4.5 years with dividends reinvested, while American Capital has lost investors more than 20% over the same time period with dividends reinvested.
Earned income for athletes includes wages and net endorsement income, while unearned income includes interest, dividends, capital gains and royalties.
FORBES: Tax Uncertainty And Fiscal Cliff Affecting Athletes' Decisions
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