Which of the following is subject to double taxation?

• A. Interest received from government bonds
• B. Dividends paid by corporations to shareholders
• C. Salaries paid to employees
• D. Payments for inventory purchases

Answer: (B)

Verified step by step guidance

1. Understand the concept of double taxation: Double taxation occurs when the same income is taxed at two different levels. In the context of corporations, this typically happens when corporate profits are taxed at the corporate level, and then dividends distributed to shareholders are taxed again at the individual level.
2. Analyze the options provided: Each option represents a different type of payment or income. Determine whether each is subject to taxation at two levels.
3. Option 1: Interest received from government bonds - This is typically taxed only at the individual level (or may even be tax-exempt in some cases, depending on the jurisdiction). It is not subject to double taxation.
4. Option 2: Dividends paid by corporations to shareholders - Corporate profits are taxed at the corporate level, and when these profits are distributed as dividends, they are taxed again at the individual level. This is a classic example of double taxation.
5. Option 3: Salaries paid to employees and Option 4: Payments for inventory purchases - Both are expenses for the corporation and are deducted from taxable income. These payments are taxed only at the individual level (for employees or suppliers) and are not subject to double taxation.