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You own 1000 shares of Mountain Oil that owns oil and gas assets
You own 1000 shares of Mountain Oil that owns oil and gas assets. The corporation earns $5 per share before taxes. Once it has paid taxes, it will distribute its earnings to you as a dividend. You have also made capital gains of $5000 this year on your shares held. The corporate tax rate is 48%, the effective personal dividend tax rate is 30% and the personal tax rate on income is 42%. How much do you own in taxes for both capital gains and dividend income?
Expert Solution
| This calculation is made considering 1000 shares that we own | in $ |
| Earning per share before taxes | 5 |
| No.of shares held | 1000 |
| Total earnings before taxes | 5000 |
| Less: Corporate tax @48% | 2400 |
| Total earnings after taxes | 2600 |
| Therefore we will receive $2600 from the company as dividend | |
| Income statement | in $ |
| Dividend | 2600 |
| Capital gains on shares held | 5000 |
| Total income | 7600 |
| Less: taxes @ 30% for dividend | 780 |
| Less: taxes @ 42% for capital gains | 2100 |
| Income after taxes | 4720 |
| Total taxes to be paid should be | 2880 |
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