Eggington Enterprises,Inc.,made $22,000,000 in profits in 2016.Eggington paid $3,000 per share to its shareholders.Jeff Goldstein owns one share of Eggington.Which of the following is true?
A)Eggington pays taxes on the $22,000,000 and Jeff does not need to pay on his dividend distribution.
B)Eggington pays taxes only on the amounts not distributed to the shareholders.
C)Eggington does not owe taxes because it is incorporated.
D)Eggington pays taxes on the $22,000,000 and Jeff pays taxes on his $3,000 in dividends.

Question

Eggington Enterprises,Inc.,made $22,000,000 in profits in 2016.Eggington paid $3,000 per share to its shareholders.Jeff Goldstein owns one share of Eggington.Which of the following is true?​
A)​Eggington pays taxes on the $22,000,000 and Jeff does not need to pay on his dividend distribution.
B)​Eggington pays taxes only on the amounts not distributed to the shareholders.
C)Eggington does not owe taxes because it is incorporated.
D)Eggington pays taxes on the $22,000,000 and Jeff pays taxes on his $3,000 in dividends.

Quizplus · Accepted Answer

Eggington will pay income tax on its profits of $22,000,000. Then, the company will distribute a dividend of $3,000 per share to its shareholders, including Jeff Goldstein. Jeff will need to report the $3,000 as income on his tax return and pay taxes on it at his individual income tax rate. Therefore, both Eggington and Jeff will pay taxes on their respective income sources. Option A is incorrect because Jeff will need to pay taxes on his dividend distribution. Option B is incorrect because Eggington will pay taxes on its entire profit, regardless of whether it was distributed to shareholders or not. Option C is incorrect because all corporations, including Eggington, are required to pay income tax on their profits.