Question

Explain how corporate income is double taxed and why this is a disadvantage only to corporations but not to a proprietorship or partnership.

Answer 1

Corporate income is taxed double because a corporate company is considered different than the shareholders.

When the company earns an income, it has to pay the income tax on its earnings, and when the company pays the dividends to the shareholders, these earnings incur the income tax liabilities for the shareholders.

So, this is how the same money is taxed twice.

This is only a disadvantage for the corporations because, in case of proprietorship or partnership, the income earned by the company is treated as the owner's income who in turn pay taxes on their individual tax returns because the income of the company is passed through to the partners or the propretor.