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Potential Tax Savings Opportunity for Corporations

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For businesses that are C Corporations or are S Corporations (that were once C Corporations), there may be a big tax savings opportunity to realize before year end.

For 2012, the dividend tax rate is 15%. As of now, the dividend tax rate is set to go up to as high as 43%. Legislation could possibly change this tax rate before year end.

If a corporation has had past taxable earnings as a C Corporation, this could be a great opportunity to distribute those taxable earnings at a significantly lower tax rate. To determine if a dividend distribution before year end would benefit the owners at a low tax rate, take into consideration:

  • Any undistributed S Corporation earnings
  • The cash flow requirements for the business
  • The applicable bank loan covenants
  • Business capitalization requirements

Now is the time to focus on this tax advantage so that once the tax rates for 2013 are released, the company can move quickly to make a dividend distribution before the end of 2012.

Please contact your SVA tax professional to determine if this planning opportunity would apply to your business.

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