If a corporation distributes after-tax profits to its stockholders in the form of dividends, the government considers these distributions as part of each stockholder's personal income. Stockholders pay taxes on these distributions.

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A disadvantage of the corporate form of business ownership is double taxation. If corporations distribute after-tax profits to stockholders, these individuals are required to pay taxes on this income. Unfortunately, these amounts were already taxed once, when the corporation paid taxes on them.

If a Corporation Distributes After-Tax Profits to Its Stockholders in the Form