0

Why some types of companies, like a limited partnership LP deduct more percentage on the dividends (for me it was 37%) than the regular percentage (30% for inc,lmt for example)?

1 Answer 1

3

In general, such a question ("why the tax code is just so") is a politics question as historically all dividends were ordinary income in the United States for the periods 1936-1939 and 1954-2003; one might ask instead why corporate dividends became privileged after 49 years without a change.

That said there is a rationale. As a "partnership" the entity does not pay taxes itself.

They combine the tax benefits of a private partnership—profits are taxed only when investors receive distributions—with the liquidity of a publicly traded company.

In addition to MLPs this is also a defining feature of REITs and a few other types of entity.

The difference with corporation dividends is there are two points at which taxes are assessed: the corporation pays tax on income paid by the corporation, and then any dividend to investors is investment income paid by the investor.

I presume the capitalists who chose between a partnership organization and a corporate organization assessed that the total tax impact on the cash flow of a dollar of income at the entity all the way to usable cash in hand of an investor would be taxed in total lower in a partnership (for at least for some investors).

2
  • are there a list for dividends tax percentage by company type? because I want to know how much percentage will be deducted before investing in a high-dividends stocks (I'm not from us)
    – huab
    Nov 17, 2021 at 21:37
  • or this is just related to S or C corporation? so in my case all the companies' dividends will be either 30% or 37%
    – huab
    Nov 17, 2021 at 21:54

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.