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
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
Chapter2: Income Tax Concepts
Section: Chapter Questions
Problem 5DQ
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Question
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
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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