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 These earnings, which are kept in the "Accumulated Adjustments Account", are generally tax-free when withdrawn by the shareholder.

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