MagiK, if you get paid $1 in income, it is taxed. If you then turn around and buy something with the $1 at a store, that store owner pays taxes on it too - it is their income. The same holds true with a corporation. If it makes money, it pays taxes. If it then pays that money out as dividends (income), the recipient pays taxes. It's a "per transaction" setup - it is not double-taxation because the company and the shareholder are two different legal entities (which is the whole PURPOSE for creating the company - an entity's liability wall).
If you do not "double-tax" (inaccurate, but I'll use it) in this way, you allow the shareholders to have the liability wall benefits of a corporation (i.e. can only lose as much money as they bet, unlike the sole proprietership and partnership situations where you can go negative) without paying any extra price for it. This liability wall is a very powerful thing, and should not come for free. Plus, as mentioned above, you've ignored the reality of the fact that 2 transactions take place between 2 different "persons."
This is a stoopid debate, anyway, as it is obviated in a number of ways. (1) Corporations re-invest most earned money, so it isn't really "income." Keep your money tied up, you rich fat cats, and you will forever avoid taxes.
(2) If no dividends are paid, there is no taxation on the stockholder, yet the value of the stock (likely) rises, meaning the stockholder gets to defer any taxation until he sells the stock, and then pays the really cheap "capital gains" tax (@ 20% or less). This is a common model. Micro$oft has never paid $1 in dividends to anyone, yet the stockholders get rich because the stock doubles-and-splits, doubles-and-splits, doubles-and-splits before they sell.
(3) For you small corporation holders, pay the $$$ out as "salary" to yourselves rather than dividends. That way, the money is a "business expense" and the corp. gets to subtract it from income (thereby avoiding the corporate tax), while the individual just pays regular income tax on it. Of course, if you own a small corp., you knew this already. [img]smile.gif[/img]
[ 04-16-2003, 01:55 PM: Message edited by: Timber Loftis ]