QQuestionBusiness Law
QuestionBusiness Law
"A stock dividend is taxable income because:
A. It divides your stock in half, giving you twice as much money.
B. It's the interest that you earn based on the amount of stock you hold.
C. It's a payment directly to you based on the company's success.
D. It's a calculation of your taxes by dividing your stocks by your tax bracket."
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Answer
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Step 1: Identify the correct answer from the options provided.
The correct answer is C. A stock dividend is a payment directly to you based on the company's success.
Step 2: Explain the reasoning behind the correct answer.
A stock dividend is a distribution of additional shares of a company's stock to its existing shareholders, usually issued as a proportion of the number of shares already held. It is a way for companies to reward their shareholders without giving them cash. Since it is a payment directly to shareholders based on the company's success, it is considered taxable income.
Final Answer
A. It divides your stock in half, giving you twice as much money. - This is incorrect because a stock dividend does not divide your stock in half. Instead, it increases your total number of shares, but the value of each share may decrease due to the increased number of shares in circulation. B. It's the interest that you earn based on the amount of stock you hold. - This is incorrect because a stock dividend is not interest earned on the stock you hold. Interest is a payment from a borrower to a lender for the use of money, while a stock dividend is a distribution of additional shares to shareholders. D. It's a calculation of your taxes by dividing your stocks by your tax bracket. - This is incorrect because a stock dividend is not a calculation of taxes. Taxes are calculated based on taxable income, which includes capital gains from the sale of stocks, as well as other income sources. A stock dividend is a taxable event, but it is not a calculation of taxes.
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