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That's not double taxation. The corporation is a different legal person. When you receive income from a corporation, that transaction is taxed, just like when e

That's not double taxation. The corporation is a different legal person. When you receive income from a corporation, that transaction is taxed, just like when employees receive their income from their (usually incorporated) employers.

cynicalkane 8y ago
Yes it is. A stock buyback increases shareholders' wealth with a tax of 0% on the shareholders. The tax code makes a bright line out of the distinction between income and capital that is, economically speaking, quite fuzzy. Depending on your need for liquidity and your means of acquiring it, it might not be really there.
- torstenvl 8y ago
  When the shareholder realizes the gain from the share price, that gain is taxed. And if it is a short-term holding, that income is taxed like regular income. Nobody is getting taxed at 0%.
  - mercutio2 8y ago
    If you have little or no ordinary income, a decent chunk of qualified dividends and long term capital gains pay 0% federal income tax. $77k for joint filers in 2018. [0] Not a particular trustworthy site, but whatever: [0] https://www.thebalance.com/how-to-use-the-zero-percent-tax-rate-on-capital-gains-2388995 https://www.thebalance.com/how-to-use-the-zero-percent-tax-r...
- fiter 8y ago
  In order to realize this tax free wealth gain, the shareholders would have to sell the stocks and pay taxes, right? It sounds like then the most important factor is not the double taxation, but that you get to choose when the "second" taxation occurs.
- hackerdr 8y ago
  The investor pays tax when the stock is sold. That tax implication is exactly the reason that many investors prefer buybacks over dividends.
jessriedel 8y ago
He's not making a normative/semantic claim, he's describing why it's not financially sensible. If I'm considering two ways to transfer money to a target, and one of them passes through a taxation checkpoint twice, I'm naturally going to avoid that. I am happy to make the normative statement that any tax code that creates such an incentive probably is badly designed, though.
- torstenvl 8y ago
  I'm having trouble making sense of your comment. Do you want to break it down for me?
  - jessriedel 8y ago
    I read your comment as responding to dman under the assumption that he was arguing (1) this taxation scheme qualifies as "double taxation" under some notable definition, (2) double taxation is wrong/bad, and therefore (3) this taxation scheme is wrong/bad. I think in fact he is not claiming any of these, he's just explaining how the incentives faced by the actors drive their behavior. If you were not actually arguing along these lines and were merely correcting his terminology without rebutting his main point, I would have expected you to preface your comment to this effect, e.g., "Not disputing your point, but technically this doesn't qualify as 'double taxation' because...". Apologies if I've misinterpreted.
gnicholas 8y ago
This is different from the employee context because the corporation gets to deduct the compensation expense. So it's a deduction to one party (corp) and an income inclusion to the other party (employee).
saosebastiao 8y ago
Your income from your employer is not taxed on the corporation. It's a cost of doing business and is tax deductible.
screature2 8y ago
It is, in this case "double taxation" is a term of art and denotes the shareholders' perspective because the shareholder is taxed first on corporate income (as "owners" of the corporation) and second on receipt of their dividends (as part of their individual income). https://www.investopedia.com/ask/answers/03/102203.asp https://www.investopedia.com/ask/answers/03/102203.asp
- kevinh 8y ago
  A corporation is a separate entity from a shareholder. If a company's corporate income and a shareholder's personal income are the same, surely we should also be OK with lawsuits against corporations also digging into the pocketbooks of shareholders. That distinction exists for a reason.
  - jacques_chester 8y ago
    The distinction exists for a reason, but that reason doesn't in itself require taxation to happen twice. If I am in business I can pay tax once or, as the owner of a corporation, potentially pay tax twice. I will obviously prefer the former. Since, as you say, the corporation is legally distinct, whether I own the whole corporation or just part of it is neither here nor there. My objection is the same, which is that there are two tollgates between me and what I see as my share of the income. Australia's corporate tax system allows for "franking credits". Shareholders receive these from companies based on their proportional ownership. The income tax paid by the corporation may be offset against the income tax owed by shareholders. Unsurprisingly, Australian companies are much more likely to pay dividends.
    - torstenvl 8y ago
      Can Australian companies spend unlimited amounts of money on political propaganda without the assent of all their shareholders?

cynicalkane 8y ago

Yes it is. A stock buyback increases shareholders' wealth with a tax of 0% on the shareholders. The tax code makes a bright line out of the distinction between income and capital that is, economically speaking, quite fuzzy. Depending on your need for liquidity and your means of acquiring it, it might not be really there.

torstenvl 8y ago
When the shareholder realizes the gain from the share price, that gain is taxed. And if it is a short-term holding, that income is taxed like regular income. Nobody is getting taxed at 0%.
- mercutio2 8y ago
  If you have little or no ordinary income, a decent chunk of qualified dividends and long term capital gains pay 0% federal income tax. $77k for joint filers in 2018. [0] Not a particular trustworthy site, but whatever: [0] https://www.thebalance.com/how-to-use-the-zero-percent-tax-rate-on-capital-gains-2388995 https://www.thebalance.com/how-to-use-the-zero-percent-tax-r...
fiter 8y ago
In order to realize this tax free wealth gain, the shareholders would have to sell the stocks and pay taxes, right? It sounds like then the most important factor is not the double taxation, but that you get to choose when the "second" taxation occurs.
hackerdr 8y ago
The investor pays tax when the stock is sold. That tax implication is exactly the reason that many investors prefer buybacks over dividends.

jessriedel 8y ago

He's not making a normative/semantic claim, he's describing why it's not financially sensible. If I'm considering two ways to transfer money to a target, and one of them passes through a taxation checkpoint twice, I'm naturally going to avoid that. I am happy to make the normative statement that any tax code that creates such an incentive probably is badly designed, though.

torstenvl 8y ago
I'm having trouble making sense of your comment. Do you want to break it down for me?
- jessriedel 8y ago
  I read your comment as responding to dman under the assumption that he was arguing (1) this taxation scheme qualifies as "double taxation" under some notable definition, (2) double taxation is wrong/bad, and therefore (3) this taxation scheme is wrong/bad. I think in fact he is not claiming any of these, he's just explaining how the incentives faced by the actors drive their behavior. If you were not actually arguing along these lines and were merely correcting his terminology without rebutting his main point, I would have expected you to preface your comment to this effect, e.g., "Not disputing your point, but technically this doesn't qualify as 'double taxation' because...". Apologies if I've misinterpreted.

gnicholas 8y ago

This is different from the employee context because the corporation gets to deduct the compensation expense. So it's a deduction to one party (corp) and an income inclusion to the other party (employee).

saosebastiao 8y ago

Your income from your employer is not taxed on the corporation. It's a cost of doing business and is tax deductible.

screature2 8y ago

It is, in this case "double taxation" is a term of art and denotes the shareholders' perspective because the shareholder is taxed first on corporate income (as "owners" of the corporation) and second on receipt of their dividends (as part of their individual income). https://www.investopedia.com/ask/answers/03/102203.asp https://www.investopedia.com/ask/answers/03/102203.asp

kevinh 8y ago
A corporation is a separate entity from a shareholder. If a company's corporate income and a shareholder's personal income are the same, surely we should also be OK with lawsuits against corporations also digging into the pocketbooks of shareholders. That distinction exists for a reason.
- jacques_chester 8y ago
  The distinction exists for a reason, but that reason doesn't in itself require taxation to happen twice. If I am in business I can pay tax once or, as the owner of a corporation, potentially pay tax twice. I will obviously prefer the former. Since, as you say, the corporation is legally distinct, whether I own the whole corporation or just part of it is neither here nor there. My objection is the same, which is that there are two tollgates between me and what I see as my share of the income. Australia's corporate tax system allows for "franking credits". Shareholders receive these from companies based on their proportional ownership. The income tax paid by the corporation may be offset against the income tax owed by shareholders. Unsurprisingly, Australian companies are much more likely to pay dividends.
  - torstenvl 8y ago
    Can Australian companies spend unlimited amounts of money on political propaganda without the assent of all their shareholders?