A corporation may subject to double taxation. Specifically, a corporation must file and pay corporate income tax during each taxable year, and the shareholders must pay taxes on any dividends or other distributions during the taxable year when they got them from the corporation. However, the corporation can choose to retain the earnings to finance growth and reasonable needs of the business up to USD 250,000 (USD 150,000 for personal service corporation) to avoid double taxation temporarily. However, if the retain earnings exceed USD250,000 (USD 150,000 for personal service corporation), Accumulated Earnings Tax with tax rate 20% will be added to regular income tax.

A dividend is a corporate distribution to a shareholder out of current or accumulated earnings and profits (E&P). Dividends first come from current earnings and profits, then out of accumulated earnings and profits once the former are exhausted. Therefore, a corporation can have negative accumulated E&P, but have positive current E&P and still pay a dividend. A corporation requires to file Form 1099-DIV when there is a dividends distribution.  Form 1099-DIV must be filed by January 31 to avoid penalty.

The computation of E&P starts with a corporation’s taxable income.  Earning and profits seek to define what a corporation has left after expenses and taxes to distribute to its shareholders. Therefore, certain expenses that are not deductible on taxable income are deductible when computing E&P, and some incomes that are exempt taxable income are included in E&P. Depreciation is a deduction in determining E&P, but straight-line is required under U.S. code §312(k)(1).

Domestic corporations that receive a dividend from a domestic corporation receive a dividends received deduction. The percentage of deduction is according to the ownership.

• The 50% of dividends received can be deducted if the ownership is less than 20%.
• The 65% of dividends received can be deducted if the ownership is between 20% and 79%.
• The 100% of dividends received can be deducted if the ownership is more than or equal to 80%.
  

In general, dividends received by individual from a domestic corporation is considered as qualified dividend.  For the tax rate on qualified dividends in 2019, please refer to following tax table.

	Taxable Income
Tax Rate	Single Filer	Joint Filer
0%	$0 to $39,375	$0 to $78,750
15%	$39,376 to $434,550	$78,751 to $612,350
20&	$434,551 or more	$61,351 or more