How Do I Pay Dividends?
The method of "declaring" dividends generally must conform to what is dictated by the laws of your state.
Dividends are considered a distribution of the retained earnings of the corporation. For a regular corporation, dividends distributed to a shareholder are considered a taxable distribution of corporate
earnings, but the corporation is NOT allowed to deduct these distributions.
For an S-corporation, the shareholder pays taxes personally on any earnings of the corporation. These earnings, which are kept in the "Accumulated Adjustments Account", are generally tax-free when
withdrawn by the shareholder.