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Dividend rates will rise next year. How high? What to do?

April 27, 2010

Will the dividend rate rise from 15% this year to 39.6% next year? Or only 20%? Does that mean you should pay a dividend from your C corporation this year? And what about the 3.8% Obamacare tax?

Paul Neiffer explains the stakes:

Let’s take an example of a farmer with a C corporation who is nearing retirement and wants to liquidate his corporation. Lets assume there is $400,000 of retained earnings. If they distribute the income in 2010, there total tax bill would be $60,000 (assuming no state income taxes). If they wait until 2011, and pay the maximum rate, then the tax bill might be about $158,000 and if they wait until 2013, then the tax bill might be as high as $174,000. As you can see, it makes sense to consider distributing the income this year.

Fortunately, you have the rest of the year to make your plans, but the next eight months will go by quickly.