Earnings and Profits
U.S. corporations are permitted to distribute amounts in excess of earnings under the laws of most states under which they may be organized. A distribution by a corporation to shareholders is treated as a dividend to the extent of earnings and profits (E&P), a tax concept similar to retained earnings. E&P is current taxable income, with significant adjustments, plus prior E&P reduced by distributions of E&P. Adjustments include depreciation differences under MACRS, add-back of most tax exempt income, and deduction of many non-deductible expenses (e.g., 50% of meals and entertainment). Corporate distributions in excess of E&P are generally treated as a return of capital to the shareholders.
Read more about this topic: Corporate Tax In The United States
Famous quotes containing the words earnings and/or profits:
“The earnings of a poet could be reckoned by a metaphysician rather than a bookkeeper.”
—Edward Dahlberg (1900–1977)
“The living language is like a cowpath: it is the creation of the cows themselves, who, having created it, follow it or depart from it according to their whims or their needs. From daily use, the path undergoes change. A cow is under no obligation to stay in the narrow path she helped make, following the contour of the land, but she often profits by staying with it and she would be handicapped if she didn’t know where it was or where it led to.”
—E.B. (Elwyn Brooks)