Double Taxation

Business, Legal & Accounting Glossary

Definition: Double Taxation


Quick Summary of Double Taxation


Double taxation is the levying of tax by two or more jurisdictions on the same income, asset, or financial transaction. Corporations are treated as a separate legal taxable entity for income tax purposes. Therefore, corporations pay tax on their earnings. If corporate earnings are distributed to shareholders in the form of dividends, the corporation does not receive the reasonable business expense deduction, and dividend income is taxed as regular income to the shareholders. Thus, to the extent that earnings are distributed to shareholders as dividends, there is a double tax on earnings at the corporate and shareholder level. S corporations and LLCs are pass-through entities which are not subject to the double tax.



What is the dictionary definition of Double Taxation?

Dictionary Definition


n. taxation of the same property for the same purpose twice in one year. This is generally prohibited if it occurs through such circumstances as a transfer of property which has been taxed once and then the tax is imposed on a new owner. However, if all property in a jurisdiction is taxed twice in the same year, it is legal since it is not discriminatory or unfair.


Full Definition of Double Taxation


Double taxation occurs when a government taxes the same income more than once. Unfortunately, there are many forms of double taxation written into the U.S. tax code. Many citizens are not even aware that they are the victim of double taxation. For instance, income tax is applied to a worker’s full earnings, and then the same earnings are taxed again for social security — a clear form of double taxation. If you have ever purchased tires for your car an excise tax is added to your bill and then sales tax is computed on top of that — another clear instance of double taxation. In some situations, multi-national corporate income may be subject to double taxation by two or more governments. For investors, double taxation occurs when a company’s profits are taxed and the same profits are taxed again as dividends.


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Definition Sources


Definitions for Double Taxation are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 27th April, 2020 | 5 Views.