Series 66

Analyzing Your Client's Financial Profile - Corporate and Trust Income Tax

Corporate Income Taxes
Corporations get a tax break for investing in common and preferred stocks (of companies other than their own).

  • There is a dividend exclusion of 70% that applies to corporations that own less than 20% of the other company.
     
  • If the company owns more than 20%, the dividend exclusion is 80%.
     
  • Since there is no corporate tax break on bond interest (for corporate or government bonds), there is no incentive for corporations to purchase these.
     
  • Of course, municipal bond interest is not taxable to the corporation (unless it is a private-purpose bond, which would be taxable to an individual as well).

Trust Income Taxes
The income tax rate that applies to a trust depends on what type of trust it is:

  • Revocable trusts- these trusts manage assets that the owner ("grantor") has placed in the trust during his or her own lifetime.
    • The grantor has the right to change or terminate the trust at any time and can serve as the trustee of the trust.
       
    • The trust becomes irrevocable upon the grantor's death.
       
    • Revocable trusts are taxed at the grantor's personal income tax rate - currently a maximum of 39.6%.
       
  • Irrevocable trusts- these trusts may be created during the grantor's lifetime or may be contained within a will and become active only upon their death.
    • Irrevocable trusts are taxed at special trust income tax rates.



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