Suppose that I register a company with the SEC. This company issues
an equity which many investors purchase, and the stocks issue a bi-
annual dividend of ~5.5% (based on the IPO price).
The dividends would get taxed very favorably, when compared to the
interest on a corporate/gov. bond (non-municipal).
Now, here's the surprise in my hypothetical example: Suppose that my
"corporation" is nothing more than a shell to invest in US
Treasuries! The equity investor buys these "stocks", which pay a
"dividend", and they get taxed much more favorably then if the
investor bought the US Treasury themselves. The interest on US
Treasuries are not tax-deductible at the federal level, and I believe
that they get taxed as income.
If on the other hand, this were disguised as a stock dividend, then
this would be more tax-efficient.
Another method to disguise an investment, and this maybe more
lucrative and easier, is to disguise the corporate bond as a municipal
bond, and the interest won't get taxed at all.
Take a look at PHC's, Personal Holding Companies.
The combined tax rates (corporate and individual) would often exceed the
individual's ordinay tax rates. Add 15% if the income is not distributed to
FYI: Dividends are not deductions by the company, so they don't reduce
corporate taxable income by the distribution amount.
The corporation would pay tax at the rate of 15% first. No deduction for
federal income tax paid by the way.
So, $50,000 of interest income would see $7,500 in federal taxes alone.
Since you are left with $42,500 to distribute, you'll pay an additional 15%
tax on the $7,500 income ~not~ distributed, or another $1,125 (the actual
amount is higher). The distributed $41,375 or less, if taxed at 15% to the
individual would run $6,206 in federal taxes.
Total taxes run just shy of $15,000. Close to 30% which, if I'm not
mistaken, takes someone in the $160k+ (if single) or $195k (if married) of
income or higher before they'd see any benefit from a PHC of this type.
Corporate income over $50K is taxed at 25%, over $75k is taxed at 34%, and
it goes up from there.
Some states exempt interest on US securities.
Now you're running into the area reserved for CID.
MIS = misc.invest.stocks.
Paul, you fell into this news group because of the OP's crosspost. The
characters in this news group are right out of Dylan's Desolation Row. Not
like the tax and accounting news groups you hang out in.
dividends are distributions of corporate assests and reduce the NAV of
a company. So your "stock" is worth less after the distribution
electing the same fucking lawyers to government is a capital idea.
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