ch15 - Chapter 15 Taxation of Corporate Income 1 Forms of...

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1 Chapter 15 Taxation of Corporate Income
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2 Forms of Business Sole Proprietorships Partnerships Corporations
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3 Corporations Corporations are granted the legal status of people. This means that they can own property and borrow money.
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4 Corporate Ownership Corporations are owned by shareholders. Each share entitles its holder to a fraction of the dividends declared, votes at shareholders’ meetings that determine the operations of the corporation, and proceeds if the corporation were to dissolve. The fraction of all of the above that applies for each shareholder is the number of shares held divided by the total number of shares outstanding.
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5 Corporate Taxes Corporations are subject to a corporate income tax in the U.S. Since the corporation is not really a person, the people who bear the burden of this tax depend on the shifting of the tax. The tax could be shifted backwards to employees, shifted forward to consumers or borne by the shareholders.
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6 The Tax Base: Measuring Business Income Using the comprehensive definition of income, business income is receipts + net capital gains income – labor, interest, material, and other business costs. In the U.S., only realized capital gains are included in net taxable income for corporations.
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7 Taxation of Owner-Supplied Inputs In small business settings, owners work for themselves. The profit from the business is what each owner is “paid.” Some of this is normal profit; some is economic profit. Corporations feature no owner- supplied input so all profit, normal and economic, is taxed.
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8 Corporate Profits and Where They Go Corporate Profits = Corporate Taxes + Retained Earnings + Dividends Retained Earnings are the portion of after-tax corporate profits that a company keeps to invest in the business. Dividends are the portion of after-tax corporate profits that are distributed to shareholders.
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9 Economic Depreciation Economic Depreciation is the amount of value that an asset loses over time. When a business buys an expensive capital
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This note was uploaded on 10/28/2011 for the course ECON 332 taught by Professor D.hyman during the Spring '11 term at American University of Beirut.

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ch15 - Chapter 15 Taxation of Corporate Income 1 Forms of...

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