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View Diary: FLASH: Mitt knows nothing about business taxation (165 comments)

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  •  There is double taxation on retained earnings (0+ / 0-)

    Retained earnings is what is left from income in the company after taxes and dividends.  Economically, this portion of a capital gain is double taxed.

    A simple example of this is a company stock that is purchased for $100.  A year goes by, no dividend is paid and the cash in the company increases by $10/share after paying taxes on $15.38 in pre tax profits.

    Essentially, the company is the same as at the beginning of the year except that it now has $10/share more in cash.

    If the share owner were now to sell her shares at $110/share, capital gains tax would be due on the $10 gains that resulted from the increase in cash after paying taxes on income.

    So essentially, to avoid double taxation, an adjustment is needed, such as increasing the investors cost basis by the retained earnings.

    The most important way to protect the environment is not to have more than one child.

    by nextstep on Tue Sep 25, 2012 at 08:35:43 AM PDT

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    •  nextstep - we often agree, but don't on this issue (0+ / 0-)

      If we could isolate stock appreciation to a single variable you might have a case, but I don't think that changing the basis of every share for retained earnings is appropriate and certainly isn't feasible.

      "let's talk about that"

      by VClib on Tue Sep 25, 2012 at 10:27:05 AM PDT

      [ Parent ]

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