Chapter 4: Gross Income from Personal and Investment Activities

01.Core Concepts

• Distribution of earnings by corporation • Taxable to shareholders to extent of earnings • If distribution exceeds earnings, it is taxed:  First, as a return of basis  Then, as capital gain • Qualified Dividends: • Tax Rates  Follow the capital gains rate table • Paid by U.S. corporation or qualified foreign corporation • Shareholder must meet holding period requirement. Don’t forget the 3.8% Medicare tax imposed by the Affordable Care Act.