Taxes affect many financial decisions. Explain how (a)interest and dividend payments are treated for tax purposes, from both a company’s and an investor’s perspective, and (b) how dividends and capital gainsare treated for tax purposes by individuals. In youranswers, explain how these tax treatments influencecorporations’ and investors’ behavior

CONCEPTS IN FED.TAX.,2020-W/ACCESS
20th Edition
ISBN:9780357110362
Author:Murphy
Publisher:Murphy
Chapter2: Income Tax Concepts
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Taxes affect many financial decisions. Explain how (a)
interest and dividend payments are treated for tax purposes, from both a company’s and an investor’s perspective, and (b) how dividends and capital gains
are treated for tax purposes by individuals. In your
answers, explain how these tax treatments influence
corporations’ and investors’ behavior

Expert Solution
Step 1

a. From the company’s perspective,

Interest and dividend payment reduce the tax liability of the company. Since, the tax is payable after allowing the following expenses.

From the Investor’s perspective,

The interest and the dividend received by the investors are taxable in the hands of individual, i.e. the investor.

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