Understanding dividends

Ask the average person what a dividend is, and they might say it’s something positive. For the most part, they’d be right.

Dividends are distributions of a corporation’s after-tax earnings to its shareholders. They’re optional to distribute, but corporations often use them to entice or pay shareholders.

Dividend taxation can be confusing, but it’s part of our tax system’s theory of integration: the idea that an individual should pay the same amount of tax whether income is earned personally or through a corporation.