What Is the Federal Government's Primary Strategy for Avoiding Double

question 17

Multiple Choice

What is the federal government's primary strategy for avoiding double taxation in the context of corporations and shareholders?

• A)Income earned by a corporation is never taxed until it is distributed to shareholders as dividends.
• B)Both corporations and shareholders pay income tax, but in each instance, the taxpayer is given a deduction for half the total amount that was received.
• C)A corporation must pay tax on its income, but if it distributes dividends to its shareholders, it can deduct the same amount from its annual property tax assessment.
• D)Income earned by a corporation and paid out as a dividend is treated as if it had been earned directly by the shareholder.
• E)Income earned by a corporation is taxed, but revenue distributed to shareholders is classified as dividends, rather than income, and consequently is tax-free.