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Accounting Allah shmoop how dividends work Double tax my Acts

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or a tale of 2 taxes Big Boy Pants industries

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in this year has just made four hundred million dollars

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in operating profits from selling big and tall ones Ease

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it then must pay a tax of thirty percent or

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one hundred twenty million bucks It has net income of

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two hundred eighty million dollars Then after taxes right net

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income comes after taxes All right there we go But

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the company is committed to shareholders that it will pay

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twenty million bucks a quarter in dividends or eighty million

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dollars a year So this is kind of a tale

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of two taxes If you really want to get depressed

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tax one Those dividends are paid after the company has

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paid its thirty percent tax on the four hundred million

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dollars that made that is dividend expenses are not deductible

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from taxes So after the company pays its eighty million

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dollars in dividends it has left two hundred million dollars

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Just half the money it had before Dividends and taxes

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started to take their bites Right notes that if the

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company had been able to take dividends before taxes well

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it would have paid out that eighty million dollars just

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after it had turned the four hundred million to then

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be taxed on three hundred twenty million of profits for

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attacks of ninety six million dollars twenty four million bucks

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less than the way things You know our okay that

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was tax one How about tax too And yes there's

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a second tax so wait It gets worse for investors

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For a normal taxpaying investor who bought a hundred shares

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in this company for saying fifty bucks a share you

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know where they're trading now that investor gets two dollars

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a share in dividends for two hundred dollars right a

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hundred shares But that two hundred dollars is taxed In

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California for example that tax would be a something like

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thirty thirty three percent something like that So the two

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hundred dollars after being taxed it's just called thirty percent

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or sixty dollars while that becomes one hundred forty dollars

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in her pocket Yeah Ouch If everyone owned the shares

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the same way I e Not in there Not yet

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Tax paying IRA or pension fund While that eighty million

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dollars in evidence would get taxed at thirty percent for

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another twenty four million dollars of tax and become a

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net number of then fifty six million dollars Tons of

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taxes are taken out before you get to keep the

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cash And remember that the next time Grandpa Joe complains 00:02:25.013 --> [endTime] about how hard it is to pay the rent

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