Lavender Corporation has taxable income of $100,000 in 2018. It pays corporate tax of $21,000 ($100,000 3 21%). This leaves $79,000, all of which Lavender pays as a dividend to Mike. Mike is a 43-year-old single individual with no income sources other than Lavender Corporation. Mike has taxable income of $67,000 ($79,000 2 $12,000 standard deduction). He pays tax at the preferential rate applicable to qualified dividends received by individuals. His tax is $4,257 [($38,600 3 0%) 1 ($100 3 12%) 1 ($28,300 3 15%)]. The combined tax on the corporation’s net profit is $25,257 ($21,000) paid by the corporation 1 $4,257 paid by the shareholder).

Can somebody explain the 0%, 12%, and 15% where they came from and how.

Answer rating: 100% (QA)

Answer is highlighted in yellow 0 12 and 15 rate is standardized by IRS for long t... View the full answer