RealTown Words

Two or more taxes paid for the same asset or financial transaction, and often used in reference to income taxes assessed first on the corporate level and secondly as dividend income on the earnings distributed to the shareholders. Under the corporate form of ownership, as a separate legal taxable entity for income tax purposes, a corporation must pay tax on its earnings. Earnings distributed to the stockholders are also taxed as regular income.

S corporations, real estate investment trusts (REITs), limited liability companies, mutual funds, and partnerships are pass-through entities that are not subject to corporate taxes, thus effectively avoiding double taxation.

Double taxation also refers to the situation of paying two separate taxes on the same property, such as the payment of state and federal taxes in more than one state. It may also refer to the situation when federal estate taxes are paid once upon the death of one joint tenant and again upon the death of the surviving joint tenant.