Definition of Accumulated Earnings Tax


It is defines as a tax which can impose by the federal government on companies ‘s net income. (which are not used to pay as a dividends) , deemed to be unreasonable and excess of what is considered ordinary.


The federal government impose that type of taxes to convince the companies to issue dividends rather than to retain the earnings. the purpose behind this tax is that the companies that retained earnings enjoy higher stock price appreciation.As capital gained taxes are lower than dividend taxes so it is beneficial for the stockholder but it is harmful for the government because the tax revenues decrease.

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