Are Form 1120 Schedule M 3 Dividends 2019-2024

Hello and welcome to this session. In this session, we will be looking at taxable dividends. So, what is a dividend and what is a taxable dividend? Why do we need to learn about this topic? Well, as a shareholder, when you purchase stock in a company, you expect to receive a dividend. A dividend is a portion of the company's profit that is given to shareholders as a reward. Now, the question is how do you treat this dividend for tax purposes? This is where the concept of taxable dividend comes into play. We will need to learn some new terminology to understand how dividends are treated for tax purposes. First, let's look at distribution from corporation earnings and profit. Earnings and profit refer to the current year's earnings and profit of the company. When the company distributes earnings and profit as dividends, it is treated as a dividend distribution. These dividends can be taxed as either ordinary income or preferentially as dividend income. If the company distributes dividends in excess of its earnings and profit, then the amount above the earnings and profit is non-taxable to the extent of the shareholder's basis. The shareholder's basis refers to the amount they have invested in the stock. This excess distribution is considered a return of capital, meaning the company is giving back the shareholder's money. However, if the distribution exceeds both earnings and profit and the shareholder's basis, then it is considered a capital gain. In summary, when you receive a dividend, it may be taxed at three different levels: dividend income, return of capital, or capital gain. To determine the tax treatment, you need to go through these steps. Let's take a look at an example to understand this better. At the beginning of the year, Amber Corporation had earnings and...