Undistributed Profits Tax

Examples of Undistributed Profits Tax in the following topics:

• Social Security and Tax Reform

  • Roosevelt pushed for a number of tax programs that would impose high income taxes on the wealthiest Americans.
  • In 1935, Roosevelt called for a tax program called the Wealth Tax Act (Revenue Act of 1935) to redistribute wealth.
  • This highest tax rate covered just one individual, John D.
  • The Undistributed Profits tax was enacted in 1936.
  • Paid dividends were tax deductible by corporations.

• The Second New Deal

  • In 1935, Roosevelt called for the Wealth Tax Act (Revenue Act of 1935) to redistribute wealth.
  • The bill imposed an income tax of 79% on incomes over $5 million.
  • The Undistributed Profits tax was enacted in 1936.
  • The bill established the principle that retained corporate earnings could be taxed.
  • Paid dividends were tax deductible by corporations.

• Toward a Welfare State

  • In 1935, Roosevelt called for a tax program called the Wealth Tax Act (Revenue Act of 1935) to redistribute wealth.
  • The bill imposed a progressive income tax (the higher the income, the higher the tax rate) on corporations and rich individuals, with as high a rate as 75% on individual incomes over $5 million.
  • This highest tax rate covered just one individual, John D.
  • In 1936, Roosevelt also pushed for a tax on undistributed corporate profits.  
  • Paid dividends were tax deductible by corporations.

• Corporate and Payroll Taxes

  • Many countries impose a corporate tax, also called corporation tax or company tax, on the income or capital of some types of legal entities.
  • The taxes may also be referred to as income tax or capital tax.
  • Generally, the tax is imposed on net profits.
  • The effective tax rate is the average corporate tax rate on the company's income and this takes into consideration tax benefits included in a current tax year.
  • Corporations are also subject to a variety of other taxes including: property tax, payroll tax, excise tax, customs tax and value-added tax along with other common taxes, generally in the same manner as other taxpayers.

• Disadvantages of Corporations

  • In many countries, corporate profits are taxed at a corporate tax rate, and dividends paid to shareholders are taxed at a separate rate -- double taxation.
  • Suppose the government taxes corporate profits at 30%, then the corporation has to pay $300,000 in taxes.
  • This is the concept of double taxation: first the company was taxed for its profits, and later shareholders were taxed for their dividends.
  • In many countries, corporate profits are taxed at a corporate tax rate, and dividends paid to shareholders are taxed at a separate rate.
  • The company profit being passed on is therefore effectively only taxed at the rate of tax paid by the eventual recipient of the dividend.

• Tax Accounting

  • Tax accounting couples legal obligations with financial accounting to ensure adherence to current tax laws.
  • As a result, the primary role of a tax accountant is to understand the business' current operating status, distill profitability before tax, and report earnings.
  • More tangibly, tax accounts will focus on the preparation, analysis, and presentation of tax payments and tax returns at all times.
  • Some exceptions exist, of course, such as non-profit organizations.
  • Non-profits have unique tax preparation requirements due to their no-tax status.

• For-profit marketing versus nonprofit marketing

  • For-profit marketers measure success in terms of profitability and their ability to pay dividends or pay back loans.
  • Continued existence is contingent upon level of profits.
  • Nonprofit institutions exist to benefit a society, regardless of whether profits are achieved.
  • Because of the implicit objectives assigned to non-profits, they are subject to an entirely different additional set of laws, notably tax laws.
  • While they are allowed to generate profits, they must use these monies in specific way in order to maintain their non-profit status.

• Federal Income Tax Rates

  • When the tax is levied on the income of companies, it is often called a corporate tax, corporate income tax or profit tax.
  • Individual income taxes often tax the total income of the individual, while corporate income taxes often tax net income.
  • This tax was repealed and replaced by another income tax in 1862.
  • Advance payments of tax are required in the form of withholding tax or estimated tax payments.
  • Taxes are determined separately by each jurisdiction imposing tax.

• Tax Loopholes and Lowered Taxes

  • Tax evasion is the term for efforts by individuals, corporations, trusts and other entities to evade taxes by illegal means.
  • Tax avoidance is the legal utilization of the tax regime to one's own advantage, to reduce the amount of tax that is payable by means that are within the law.
  • The term tax mitigation's original use was by tax advisors as an alternative to the pejorative term tax avoidance.
  • Both tax avoidance and evasion can be viewed as forms of tax noncompliance, as they describe a range of activities that are unfavorable to a state's tax system.
  • A review in 2011 by Citizens for Tax Justice and the Institute on Taxation and Economic Policy of companies in the Fortune 500 profitable every year from 2008 through 2010 stated these companies paid an average tax rate of 18.5%, and that 30 of these companies actually had a negative income tax due.

• Financing the US Government

  • For example, income taxes due to their progressive nature are used to equitably derive revenue by differentiating tax rates by income strata.
  • The following is a list of taxes in common use by governmental authorities:
  • Excise tax: tax levied on production for sale, or sale, of a certain good.
  • Sales tax: tax on business transactions, especially the sale of goods and services.
  • Capital gains tax: tax on increases in the value of owned assets.