Why the hell are dividends taxed?

Question

I believe these facts to be true:
* dividends are paid out of a company's equity
* as a shareholder, you're only getting your own capital back (no gains)
* the exchange deducts the dividend from the share price once paid (see example below)

Example: You have 10 shares worth $10 each, or a total investment of $100 (10 shares x $10).

You receive a dividend of $1 per share. That's $10 cash in your pocket (10 shares x $1); however, at the same time your shares go down in value by one dollar to $9 a share. Thus, you now have:

$10 cash in your pocket plus:
ten shares at $9 each worth a total of $90.

After the dividend, you STILL are worth $100, yet the governement will slap you with a tax bill on your dividend.

WHY? WHY? WHY? Someone PLEASE answer this. This is madness.

Thanks.

Answer 1

What kind of financial institution taught you this? Dividends are paid out of a set-aside amount from the company. The issuer of the shares sets aside a certain portion to pay as dividends. This has nothing to do with the value of the share. It is a reward for being a shareholder and as such is an unearned income to you.

Answer 2

uncomplicated dividends are uncomplicated tax earnings. Qualifying dividends at the prompt are taxed at a decrease price. search for the words in Pub 17 to ascertain the precise therapy. sure businesses pay taxes on the earnings before it truly is a dividend and it truly is double taxation.

Answer 3

Actually, you are not getting your own capital back- you still own the same number of shares and if the stock goes up (this is market driven, not a reaction to dividends, per se) you still have your capital plus a gain. You don't pay tax on that gain until you sell the stock to show "constructive receipt" of the gain.
Therefore, this is income to you, albeit "unearned income".
This is why people refer to dividends as double taxation- dividends are not a deductible expense to the corporation so the corporation pays tax on its taxable income, and you pay tax on the dividend.
Double the fun, eh?

Answer 4

even better is once you have paid that, and of course paid taxes on the original money you put into the stock, then you get to pay once more when you sell the stock.

Of course every time the govt talks about cutting dividend taxes, the argument comes up that is only helps the "rich"

I sure would love to see a national sales tax replace everything else.

Answer 5

Because the Tax Code defines dividends as taxable income. It is not logical, but statutory.

Answer 6

What if the shares went up 1 dollar?

Answer 7

Dividends are not paid out of equity, but are paid out of earnings and profits.

Answer 8

It is a wealth re-distribution method.