Constructive Dividend

AAA

DEFINITION of 'Constructive Dividend'

A concept in U.S. taxation in which various distributions to shareholders are not labeled as dividends but are still considered dividends by the IRS and taxed as such. Constructive dividends are most commonly found in companies in which the employees are also the shareholders. You can think of a constructive dividend as an undeclared dividend by the company that involves the use of corporate assets.

INVESTOPEDIA EXPLAINS 'Constructive Dividend'

For example, in many small companies, employees who are also shareholders may borrow money from the company to buy personal items. This loan may be classified by the IRS as a constructive dividend and must be reported on the tax return of the shareholder. In addition, the company would not be able to take a deduction for the constructive dividend.

RELATED TERMS
  1. Employee Stock Ownership Plan - ...

    A qualified, defined contribution, employee benefit (ERISA) plan ...
  2. Dividend Rollover Plan

    An investment strategy in which a dividend-paying stock is purchased ...
  3. Employee Stock Option - ESO

    A stock option granted to specified employees of a company. ESOs ...
  4. Dividend

    1. A distribution of a portion of a company's earnings, decided ...
  5. Equalizing Dividend

    An additional dividend paid to eligible stockholders when their ...
  6. Policyholder Dividend Ratio

    The policyholder dividend ratio is a measurement of the profitability ...
RELATED FAQS
  1. No results found.
Related Articles
  1. Markets

    The 4 Basic Elements Of Stock Value

    Investors use these four measures to determine a stock's worth. Find out how to use them.
  2. Investing Basics

    How And Why Do Companies Pay Dividends?

    If a company decides to pay dividends, it will choose one of three approaches: residual, stability or hybrid policies. Which a company chooses can determine how profitable its dividend payments ...
  3. Bonds & Fixed Income

    What Are Corporate Actions?

    Be a savvy investor - learn how corporate actions affect you as a shareholder.
  4. Entrepreneurship

    Do "Widow And Orphan" Stocks Still Exist?

    Is there such a thing as a safe stock providing high dividend income? It may be time to redefine the terms "widows" and "orphans."
  5. Stock Analysis

    What’s The Highest Dividend-Paying Tech Stock?

    Technology stocks tended not to pay dividends, preferring to reinvest available capital back into their respective businesses to accelerate their growth.
  6. Investing

    Is Caterpillar Here To Stay?

    Because Caterpillar is the largest construction and mining equipment manufacturer in the world, investors can count on it to keep paying dividends.
  7. Investing

    Windstream's Strategy For Dividend Investors

    Windstream Holdings has been among the top dividend-paying stocks in the market, with double-digit percentage yields that have stood the test of time.
  8. Investing

    Are You An Investor Seeking For More Income?

    For income-seeking investors, it's hard to turn down a double-digit dividend yield like that of Prospect Capital Corporation .
  9. Investing

    How Gilead Sales Have Grown Conspicuously?

    Learn how Gilead sales have climbed from $1.33 billion in 2004 to $24.89 billion as of the end of 2014.
  10. Credit & Loans

    Which Is One Of The Nation’s Safest Banks?

    While there's no such thing as a completely safe bank stock, it's hard to find one that comes closer to the mark than New York Community Bancorp .

You May Also Like

Hot Definitions
  1. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  2. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  3. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  4. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  5. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  6. Law Of Supply

    A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity ...
Trading Center