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The Farm CPA

RSS By: Paul Neiffer, Top Producer

Paul is now part of the fourth generation in America that is involved in farming and hopes the next generation will be involved also. Through his blog he provides analysis and insight to farmer tax questions.

Dividend Tax Rates are About to Skyrocket

Jul 10, 2010

Congress back in 2001 dropped the maximum tax rate on dividends received by a taxpayer from 39.6% to 15% (plus any applicable state income taxes).  But under the so-called Sunset Rule, these special low rates expire at the end of 2010.  Beginning in 2011, the top rate is expected to go back to 39.6% and beginning in 2013, the effective top rate will be 43.4% after taking in account the new Medicare surtax of 3.8%.

What this means to a farmer who has a C corporation that is in the top tax bracket both at the corporate level and at the individual level is as follows:

  • For 2010, your maximum combined corporate and individual income tax rate will be 44.75%
  • For 2011 and 2012, your maximum combined rate will increase to 60.74%
  • For 2013 and thereafter, your maximum combined rate will be a whopping 63.21%.  This represents a huge 41% increase since 2010.

A tax planning tip is to review your current retained earnings and see how much you should drop out to you in the form of dividends.  If the corporation needs the working capital, you can always loan it back to it at very cheap interest rates.

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COMMENTS (10 Comments)

Chris Hesse, CPA
S corporation distributions are not (yet) scheduled for being subject to self-employment tax. And for the time being, people who materially participate in their S corporation will not be subject to ObamaCare's 3.8% Medicare "Contribution" Tax.

S corporation distributions aren't subject to any tax, as long as the shareholder has tax basis (reply to T. Sparks). Of course, the pass-through income of the S corporation is (currently) not subject to self-employment tax. The point of the article is the double taxation of C corporations is scheduled to go up. S corporations are not subject to double taxation.
11:11 AM Jul 13th
Best America
This ridiculous taxation has got to stop. We all need to seriously consider our votes in the upcoming elections. Check the records of your representatives.
9:07 AM Jul 13th
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