Quail Corporation is a C corporation with net income of $300,000 during 2010.If Quail paid dividends of $50,000 to its shareholders,the corporation must pay tax on $300,000 of net income.Shareholders must report the $50,000 of dividends as income.

Question

Quizplus · Accepted Answer

C corporations are separate legal entities from their shareholders and are responsible for paying taxes on their own income. Dividends paid to shareholders are considered distributions of the corporation's after-tax income and are subject to taxes in the hands of the shareholders. Therefore, both the corporation and the shareholders are taxed on the income and dividends, respectively.

Quail Corporation Is a C Corporation with Net Income of $300,000