a corporation gives out its profits as dividends paid to shareholders.
a corporation gives out its profits as dividends paid to whom?
shareholders
cash dividends are the most common form of payment and are paid out in currency, usually via electronic funds transfer or a printed paper check. such dividends are a form of investment income and are usually taxable to the recipient in the year they are paid. this is the most common method of sharing corporate profits with the shareholders of the company. for each share owned, a declared amount of money is distributed. thus, if a person owns 100 shares and the cash dividend is 50 cents per share, the holder of the stock will be paid $50. dividends paid are not classified as an expense, but rather a deduction of retained earnings. "dividends paid" does not show up on an income statement but does appear on the balance sheet.
dividend
another case where income is not taxed as ordinary income is the case of qualified dividends. the general rule taxes dividends as ordinary income. a change allowing use of the same tax rates as is used for long term capital gains rates for qualified dividends was made with the jobs and growth tax relief reconciliation act of 2003. qualified dividends are dividends paid by domestic corporations or by corporations from foreign countries that have a tax treaty with the united states. this rule applies under the condition that the corporation has included the dividends in its own taxable income. thus pass-through corporations like reits and remics would not distribute qualified dividends, and the dividends from those entities would be taxed at the ordinary income rates.
ordinary income