What are tax-free corporate dividends and how do I apply for them?

A

A C Corporation is the only business structure that is never a pass-through entity.
The difference between C corporations and all the others is that c corporations are completely separate C Corp tax entities. This means you don't pay the business taxes - the corporation pays its own C Corp tax. You will only pay C Corp tax on any money you take out of the business as salary or dividends.

One of the ways in which the "Jobs and Growth Tax Relief Reconciliation Act of 2003" affects us is in the way in which dividends are taxed. People in the US, who have invested money and receive dividends from their investments, now qualify to pay lower taxes on those dividends, whether the dividends are received from domestic or qualified foreign corporations.

Most people have some interest income during the year. The most common is the one received from banks. This is taxable and has to be reported on your return. Interest earned on loans you have given is also taxable. If you have received a refund from the IRS and part of the check is for interest on a refund, that part is taxable income in the year of receipt.

Certain dividends received are actually interest income. Examples are dividends received from building and loan or saving and loan associations. Your accounts in credit unions and cooperative banks may also earn dividends, which are taxable.

The dividends received from a mutual fund are also interest income. In many cases this interest may be exempt, though you may need to report it on your tax return and it would qualify for tax relief. However, you need to make sure of the exempt status of such dividends. For instance, dividends paid by certain private activity bonds are liable for alternative minimum tax.

Some other types of interest also qualify for tax relief. Interest earned by you on deposited insurance dividends with the Veteran Affairs Department is exempt. Interest earned on some U.S. Savings bonds, such as Series EE, and paying higher educational expenses also qualify for tax relief. Interest on a Roth IRA is normally tax exempt. In the case of a traditional IRA, the tax is deferred until such time as you make your withdrawals.