For a Limited Time Want to take advantage of the cut in dividend taxes? You'll need to strike while the iron's hot.
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If you're a C-corporation owner, there's a short windowof opportunity under the Jobs and Growth Tax Relief ReconciliationAct of 2003 you won't want to miss. Here's why: This taxlaw brightens your dividend picture.
Under the new law, the top rate on dividends is now 15 percent,while the top rate on compensation can run as high as 35 percent.As a result, you may want to shift your compensation strategy andincrease dividend payouts while reducing your compensation. Whileany dividends you receive are free of employment taxes, keep inmind that they are not deductible as a business expense. In thepast, given a choice, it made sense to pay compensation rather thandividends. Compensation was deductible by the corporation, thusavoiding one level of tax. Dividends, on the other hand, cangenerally be paid only out of income that has already been taxed atthe corporate level, and are then taxed again when received by theshareholder.
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