What is meant by double taxation and how closely held corporations can typically avoid this burden.
Double taxation refers to the fact that earnings of a cropration are subject to taxation at the corporate level and, if pai dout as dividends to the owners, taxed again at the individual level. In a closely held corporation, much of this problem can be avoided by paying the corporate earnings as salaries to the owners. The salary payments are deductible by the corporation if they represent "reasonable compensation," thereby eliminating all or most of hits taxable income. the owners can decide to retain someof the corproate earnings within the company, thereby eliminateing taxation at the level of the individual shareholder.