Chapter 8

All of LT’s distributions, whether in the form of dividends or stock repurchases will be taxed at the investors personal rate. Buy shares and keeping cash in the firm will depend of the tax rate of the investors relative to that of the firm. Under the former option the money is taxed at the corporate rate and in the latter at personal rate.

Throughout the entire existence of any form of government, there has always been taxes. Most of the time (if not all), people hate taxes. With this being said, the United States has adopted a progressive tax since its very existence. We believe that if our nation is placed under a flat tax system, our economy will operate more effectively. If we incorporate a flat tax system we will be able to ensure fairness among all citizens, eliminate tax loopholes, and allow opportunities for business expansion. With this being said, we will be examining the strengths and weaknesses about the flat tax system and how it has been used into practice.

Our live top marginal tax rate is 39.6% which would be kept there in the House bill, but the Senate bill seeks to reduce it down to 38.5%, which is favored by supply-side economic theorists who state that this reduction will let the economy grow.

The Republican Party also supports a flat tax in addition to these tax cuts. Tax policies that divide Americans into separate groups aren’t something that Republicans agree with, such as raising taxes for the upper-class citizens. Republicans believe that the fairest way to tax United States citizens is to make everyone pay a certain percentage, no matter what your income is. In February of 2014 the Republicans released a tax reform plan. This plan included lower tax rates across the board, a new bank tax, and the elimination of state and local income tax deductions. The main goal of the proposal would be to eliminate 4 of the 7 tax brackets in the United States and create a 3-bracket system. This new system would drastically decrease many people’s tax rates. However, people who are at the bottom of the brackets would experience an increase in their tax rates.

With the presidential elections coming up, different tax policies are being debated between the candidates. Whether it is proposed by a Democratic or a Republican presidential candidate, there have been many possible solutions presented on how to reform the current tax code. Focusing specifically on four candidates, two from the Democratic Party, and two from the Republican Party, I will compare and contrast their respective tax proposals. While the Democratic candidates generally agree with President Obama’s current tax code, all four candidates are looking to reform it in some way in order to, in their own eyes, better the current tax code affecting today’s citizens.

If taxes are proportional, the tax rate remains constant for any income level, whereas taxes that are progressive, its tax rate gets higher as the income level increases.

This paper explores the different types of nonliquidating distributions and how they distributed to shareholder in a corporation from research collected online (Internet) and offline (non-Internet). The online research was done using sites including the IRS website, ProQuest and EBSCOhost. The majority of the offline was done using the textbook McGraw-Hill’s Taxation of Business Entities: 2016 Edition. The different types of nonliquidating distributions includes property distribution, dividend from earnings and profits, constructive dividends, stock redemptions, and partial liquidation. Form 1099-DIV will be shown in the appendix to show the distribution of dividend to shareholders. The research indicated that each type of nonliquidating distribution is important to the corporation. The purpose of this paper is to give a general overview of how companies handle nonliquidating distributions throughout the year and to provide an explanation of the distributions.

The Senate bill would adjust the seven individual income tax brackets, a change that would phase out by 2026. The corporate tax rate would be cut from 35 to 20 percent, and "pass-through" businesses would be taxed at 23 percent.

The Tax Cuts and Jobs Act includes four individual tax brackets with rates 12 percent, 25 percent, 35 percent and 39.6 percent, which the highest tax bracket remaining the same from the current system.

Recently there has been a significant tax reform, which is tax cuts, claimed by American president Donald Trump, affects both individuals and families. The U.S. Senate has passed the tax reform bill 51 to 49, which is the first amendment to the tax law by the U.S. Congress in approximately 30 years. It is the first major victory Trump has been in power for nearly a year. The heart of the new tax reform aims to reduce the federal income tax rate for individuals and businesses. Firstly, this short paper illustrates the most critical aspects of the new tax reforms (lower rates for individuals, middle class tax cuts, and itemized deductions). Then, the paper explores the most significant changes or influences and the biggest

Taxes. Trump 's plan to come up with an improvement to our taxing system will move all citizens into three different tax brackets. As of right now we currently have seven. The top bracket for citizens claiming married joint filers having an income more than $225,000 a year would pay 33% (Bryan). The $75,000-to-$225,000 yearly income bracket would pay 25% (Bryan). The under-$75,000 bracket would pay 12% (Bryan). American People who make under $75,000 a year will be taxed at a 15% rate (Bryan). Lastly the top bracket made from those making $466,950 — pays 39.6% (Bryan). One of Trump’s proposals would cut the current corporate tax rate to 15% The tax for corporate companies sits at 39%, but majority companies pay much less in their tax rate. The average tax rate for S&P 500 companies is 29%, according to research by Goldman Sachs (Bryan). Trump’s whole philosophy over the tax system is to lower it and stimulate the economy in a more fashionable way.

The United States tax system is in complete disarray. Republicans and Democrats agree that the current tax code is complex, unfair, and costly. The income tax system is so complex; the IRS publishes 480 tax forms and 280 forms to explain the 480 forms (Armey 1). The main reason the tax system is so complex is because of the special preferences such as deductions and tax credits. Complexity in the current tax system forces Americans to spend 5.4 billion hours complying with the tax code, which is more time than it takes to manufacture every car, truck and van produced in the United States (Armey 1). Time is not the only thing that is lost with the current tax system; Americans also lose

It has the option to distribute the cash in the form of dividends. Shareholders were taxed on cash dividends at ordinary income rates whereas gains realized on shares that were repurchased received capital gains treatment.

First, the amount of any distribution shall be the amount of money received, plus the fair market value of the other property received (IRS 2016). Secondly, the amount that is taxable is the portion of a distribution which is a dividend is included in gross income, and that the remaining portion of the distribution is applied first against the adjusted basis of the stock and then is treated as gain from the sale or exchange of property (IRS 2016). Thirdly, the basis of the property received in a distribution shall be the fair market value of such property (Cornell 2016). Finally, the special rules applies to 20 percent corporate shareholder. “For purposes of this subsection, the term “20 percent corporate shareholder” means, with respect to any distribution, any corporation which owns, stock in the corporation making the distribution possessing at least 20 percent of the total combined voting power of all classes of stock entitled to vote, or at least 20 percent of the total value of all stock of the distributing corporation (except nonvoting stock which is limited and preferred as to dividends), but only if, but for this subsection, the distributes corporation would be entitled to a deduction under section 243 or 245 with respect to such distribution.” (Cornell 2016)

The corporation is ruled by the internal revenue Code where Subchapter C is the C Corporation and Subchapter S is the S corporation. Income on C Corporation is subject to double taxation; thus, the dividend distribution is not deductible by corporation. All corporations receive dividend where they treat them as ordinary income. Ordinary income can be allowed as dividend payment deduction. The tax treatment of dividend differs in corporation depending on the types of entity. According to the Internal Revenue Code § 316 “the term dividend means any distribution of property made by a corporation to its shareholders-out of its earnings and profits accumulated after February 28, 1913.” However, there are many different types of dividend such as Qualified Dividends, Property Dividends and Constructive Dividends.