Quote Originally Posted by dwalker460 View Post
Your dividends are taxed when you claim them (as you should) as income. The company does not pay taxes on the money they send to you, only the monies they show as profit on their balance sheet at the end of the year, so I am not sure where you are getting double taxation from.
Corporations pay taxes on the profits they show at the end of the year. Those profits can either be retained by the company or distributed to stockholders, or a mix thereof. The dividends distributed to shareholders are then taxed on the individual as short or long term capital gains.

Example:

Acme Corporation has revenues of $10M at the end of the year (that's a lot of anvils). After all the accounting is done, they show $500k in profit. They pay taxes on that profit, say 30%, leaving them net earnings after taxes of $350k.

They decide to pay a dividend of $1 per share, with 100k shares outstanding. They send out $100,000 in cash to the shareholders. The sole long term stockholder, R. Runner, will then pay capital gains tax of 15% on that $100k income.

That's where the double taxation comes from. What am I missing? Dividends do not count as expenses and cannot be use as a deduction to income to reduce taxable income. That's why most profit is held as retained earnings rather than dispursed to the shareholders, as a tax avoidance.