Accumulated Earnings Tax

Accumulated Earnings Tax
A tax imposed by the federal government upon companies with retained earnings deemed to be unreasonable and in excess of what is considered ordinary.

The federal government produced this tax to deter investors from negatively influencing a company's decision to pay dividends. Essentially, this tax persuades companies to issue dividends, rather than retaining the earnings.

The premise behind this tax is that companies that retain earnings typically experience higher stock price appreciation. Although this is beneficial to stockholders, as capital gains taxes are lower than dividend taxes, it is detrimental to the government because tax revenues decrease. By adding an extra tax upon a firm's retained earnings, the taxman will either collect more taxes from the company or persuade them to issue dividends, thereby allowing the government to collect from the stockholders.


Investment dictionary. . 2012.

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Look at other dictionaries:

  • accumulated earnings tax — n: a tax levied on the taxable income of a corporation that is accumulated by the corporation rather than distributed to shareholders and that is not retained for the reasonable needs of the business Merriam Webster’s Dictionary of Law. Merriam… …   Law dictionary

  • accumulated earnings tax — A special tax imposed on corporations that accumulate (rather than distribute via dividends) their earnings beyond the reasonable needs of the business. The accumulated earnings tax is imposed on accumulated taxable income in addition to the… …   Black's law dictionary

  • accumulated earnings tax — A special tax imposed on corporations that accumulate (rather than distribute via dividends) their earnings beyond the reasonable needs of the business. The accumulated earnings tax is imposed on accumulated taxable income in addition to the… …   Black's law dictionary

  • accumulated earnings credit — A deduction allowed in arriving at accumulated taxable income for purposes of determining the accumulated earnings See accumulated earnings tax accumulated taxable income …   Black's law dictionary

  • accumulated earnings credit — A deduction allowed in arriving at accumulated taxable income for purposes of determining the accumulated earnings See accumulated earnings tax accumulated taxable income …   Black's law dictionary

  • accumulated earnings — See: retained earnings Category: Business, LLCs & Corporations → Business Accounting, Bookkeeping & Finances Category: Business Cash Flow Problems & Bankruptcy Category: Business, LLCs & Corporations → Business Tax & Deductions Category: Business …   Law dictionary

  • accumulated profits tax — A tax on earnings retained in a firm as a way for the principals to defer personal income taxes. Bloomberg Financial Dictionary …   Financial and business terms

  • tax — A charge by the government on the income of an individual, corporation, or trust, as well as the value of an estate or gift. The objective in assessing the tax is to generate revenue to be used for the needs of the public. A pecuniary burden laid …   Black's law dictionary

  • earnings — Income. That which is earned; i.e., money earned from performance of labor, services, sale of goods, etc. Revenue earned by an individual or business. Earnings generally include but are not limited to: salaries and wages, interest and dividends,… …   Black's law dictionary

  • earnings — Income. That which is earned; i.e., money earned from performance of labor, services, sale of goods, etc. Revenue earned by an individual or business. Earnings generally include but are not limited to: salaries and wages, interest and dividends,… …   Black's law dictionary

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