Up-to-the-minute advice, information, resources, and, on occasion, commentary on federal and New Jersey state income taxes, and the various New Jersey property tax rebate programs, and insights and observations on tax policy and professional tax practice, by 40-year veteran tax professional Robert D Flach.
Friday, September 22, 2017
SOMETHING TO THINK ABOUT
the talk about tax reform and reducing the corporate tax rate I have not heard
anyone propose a “dividends paid” deduction for corporations.
profits are taxed twice – on the corporate return, and then again on the
individual income tax return when dividends are paid to shareholders out of
corporate profits.On the individual
level there is some relief via the reduced tax rates on “qualified” dividends –
0%, 15% and 20%.But, except for the
lowest level, there is still double taxation.
reducing the corporate tax rate to 15% why not just allow corporations to
deduct from net taxable income dividends paid to shareholders.And on the individual level tax all dividends
as ordinary income, like interest income. There would no longer be “double-taxation” of
corporate income and basic investment income – interest and dividends - would
be taxed the same as earned income.
corporate level I would also suggest removing all industry-specific tax “loopholes”,
and tax corporations on net book income less dividends paid.I would also do away with the deduction for
depreciation on real property (buildings) and true capital improvements thereto
– both on the corporate and individual tax return.Generally, in reality, the value of
investments in real estate do not “depreciate” over time.
suggestion “C” corporate income and pass-through corporate income would be
taxed in a similar method.Dividends
paid from a “C” corporation, not taxed on the corporation level, would now be
taxed to the shareholder at ordinary income rates, and “S” corporation profits,
an equivalent of dividends, would continue to be taxed at ordinary income
proposals would result in both corporations and individuals being taxed on the
net “cash in pocket” economic result of their activities.