Explain how the federal income tax structure impacts a business decision to finance with use of debt vs. equity

The interest is tax deductible.

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Originally Posted by KongTheKonqueror

KongTheKonqueror agrees: Dividends if paid are also taxed twice. The company pays them after taxes and the person receiving them must pay taxes on them.

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Dividends aren't exactly taxed twice.

While the corporation does pay tax on the dividends, it is not the same amount as the individual.

The idea is that individual + corporation equal a certain percentage of total tax paid.

Also, the individual does receive a divided tax credit, so their tax burden is reduced to the extent that the corporation paid tax.

If one company uses a lot of debt financing, whereas another company
With similar operations uses only common stock financing, the stock-financed company
Will have no interest, hence no interest tax deductions, hence a higher income
Tax bill. The company that uses debt will have a lower tax bill, and thus more of its
Operating income will be passed on to investors (stockholders and debtholders).
Thus, our tax system encourages debt financing.

Hello out there. I have a question, how can I get bigger returns on my taxes?