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How are preferred stock dividends treated for tax purposes by the issuer, an individual shareholder, and...

How are preferred stock dividends treated for tax purposes by the issuer, an individual shareholder, and a corporate shareholder?

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Answer #1

There is no tax advantage to the issuing of preferred shares when compared to other form of the financing. Preferred share paid dividend with after tax dollars which is same as common shares.

For individual shareholder dividend from preferred stocks are taxed differently. Many preferred dividend are qualified and taxed at lower rate than normal income.

Dividend income is tax free because company already pay dividend distribution tax before making payment for the same to the shareholders.

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