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What is a Dividends Received Deduction?
A Dividends Received Deduction (DRD) is a tax deduction available to corporations when they are paid dividends from another corporation. This is a provision to reduce the number of times an amount of earnings can be taxed: company A, which is paying the dividend, will have already been taxed on it, and the shareholders of company B will be taxed as well, so the Dividends Received Deduction alleviates taxes at the intermediary stage when Company B receives it. Continue reading...
What are Accounts Receivable?
Accounts Receivable is part of the Assets on a Balance Sheet, and it details the money due to the company from its customers or debtors in the near future. Accounts Receivable will include money which should be received by the company from those who owe it. This appears in the Current Assets section of the Balance Sheet. The money should be receivable within the next 30 or 90 days, generally. This might be rent payments or other bills which are paid regularly or after the goods or services have been rendered. An account receivable also might include interest due. Continue reading...
What is a foreign tax deduction?
Workers who earn income in foreign countries will frequently pay taxes on the income in the country in which the wages were earned. In such cases the worker may be eligible to take deductions for the amount of taxes paid so that their entire income is not subject to taxes again in their country of citizenship. Ex-patriot workers who earn income overseas are generally eligible for tax deductions, credits, or exclusions to account for the taxes that they have already paid on their income in the foreign country. Continue reading...
What is Accounts Receivable Financing?
Financing companies can step in and take over the accounts receivables of a company who no longer wants to wait to be paid on their receivables. Financing companies, who are sometimes called Factoring Companies or Factors, will pay about 75% of the amount due to companies who want to offload or outsource their Receivables. The factoring company will then take over the task of collections, and will transfer most of the money received back to the original company, after their fees have been deducted from the proceeds. Continue reading...
What is Accounts Receivable Subsidiary Ledger?
The Accounts Receivable Subsidiary Ledger will be a separate ledger from a company’s General Ledger, where all of the information pertaining to all Accounts Receivable will be reported. Receivables may have only a line-item on the General Ledger of a company, but may have an entire department dedicated to servicing the receivable accounts. Because there may be a large amount of information in just the Receivables sub-account, there is often a Subsidiary Ledger dedicated to the minutia of all the Accounts Receivable business. Continue reading...
What is Receivables Turnover Ratio?
Receivables Turnover Ratio gives a snapshot of how well a company does by extending credit. The ratio is computed by putting the number of credit sales over the total amount of outstanding receivables. If a company is not able to efficiently collect on credit that it has extended to its customers or debtors, it will have a low Receivables Turnover Ratio. The top number is the amount of new receivable accounts opened during a period, and the lower number is the total number of outstanding receivable accounts. A much larger bottom number suggests that they are not able to efficiently collect on and close their receivables. Continue reading...
What is a Dividend Tax Credit?
In Canada, the dividend tax credit eliminates tax liability for eligible dividends. Eligible dividends can come from public companies, foreign-owned companies operating in Canada, and many privately owned companies. It allows Canadian citizens to avoid having their dividends double-taxed. Canada offers a dividend tax credit that allows investors to eliminate their taxes on dividends paid from eligible companies. Continue reading...
What is a Dividend?
A dividend is an income-like payment to an investor who holds stock. Dividends tend to be paid by companies who are well established and are not retaining their earnings for capital projects. There are several kinds of dividends, but the most common is the cash dividend. You are not likely to see dividends paid by companies whose stocks are categorized as Growth stocks. Growing companies are going to be ploughing money back into their company for years. Well-established companies tend to distribute some of their profits as dividends because it allows them to retain loyal shareholders and keep the price of the stock fairly steady. Continue reading...
What is Adjusted Gross Income?
For tax purposes, Adjusted Gross Income is the basis of an individual’s income tax calculations, before “below the line” deductions. Adjusted Gross Income (AGI) is Gross Income (all of an individual’s earnings for the year) minus above-the-line deductions such as retirement plan contributions, education and medical expenses, Health Savings Accounts, alimony, military exemptions, and so on. After these adjustments, a person can take the standard federal deduction or itemize their other deductions. These are known as below-the-line deductions. Continue reading...
What is Income Tax?
Income tax is paid to the government based on the amount of income earned. There are federal income taxes, and some states have their own income taxes, too. As an employee for a company, income taxes will be withheld from paychecks using the company’s best estimation of your annual earnings. At the end of the year it may turn out that they withheld too much, and the government may give you a tax refund for what was overpaid. Continue reading...
What is Income?
Income is a stream, series, or lump sum of cash or cash equivalents that is paid to an individual or entity based on work performed, goods sold, ownership rights, or by being a creditor to whom interest is paid. It is received when a net result is positive, and is sometimes referred to as the “bottom line.” Income can be viewed from a itemized, current perspective or as a balance sheet item for an entire accounting period, such as a year. It also might be discussed as a gross (pre-tax) or net (post-tax) amount. Continue reading...
What is Cash Available for Distribution?
Cash Available for Distribution is a term used in REITs and sometimes corporate accounting for the balance of earnings left over after expenses have been paid. After expenses have been paid and a reserve fund amount has been set aside for taxes and other recurring expenditures, there may be enough earnings left over to be designated as Cash Available for Distribution (CAD). It might also be called Funds Available for Distribution (FAD). Continue reading...
What is Yield?
Yield is a term which describes the cash return on a security investment, and does not include appreciation. Yield is the cash paid out of an investment in the form of dividends and interest received. The term does not encompass the appreciation of the investment, and it may be evaluated in different ways for different types of investments, so comparisons of yield across asset types is not standardized or recommended. Continue reading...
What is Dividend Adjusted Return?
An accurate historical return calculation for an investment should be done with the dividends in mind, such as assuming all dividends were reinvested, which is the most common way they are used. Accurate historical information concerning prices and return should take the stock splits, dividends, and so-on into account. In a lesser-known context, dividend adjustment means a payment of accrued but yet-unpaid dividend amounts to the bearer of convertible preferred stock at the time that he or she converts them to shares of common stock. Continue reading...
What is Dividend Selling?
If a person buys a stock that pays a dividend on or after the ex-dividend date, where we understand “ex” to mean “after,” it means that the buyer would be buying the shares for the amount that still has a dividend (or some of it) priced-in, but the seller, not the buyer, will get to have the dividend, and the share price will go down immediately after the dividend is paid. Stock prices will tend to go up in anticipation of a dividend, and more so after the declaration date, which might be anywhere from two months to two weeks before the actual dividend is paid, when the company announces when a dividend is to be paid and how much it will be. Continue reading...
What is Dividend Policy?
Different companies have different approaches to dividends: whether to pay them, whether it’s a fixed amount in the budget or dependent on the kind of expenses they incur each year. These and other considerations make up what is known as a company’s dividend policy. Companies may have a different phases in their development that will lead them to adopt different dividend policies along the way. As a young company in the Growth category, the dividend policy will most likely be not to distribute any dividends. Continue reading...
What is the difference between Common Stock and Preferred Stock?
A preferred stock is higher up the equity chain than a common stock - preferred stockholders receive dividends first and will be paid out first in the event of liquidation. The primary difference between a preferred stock and a common stock is that preferred stockholders have a greater claim to assets of the company. This can come in two forms: preferred shareholders being paid dividends first, and also having a higher claim to being paid out in the event a company goes bankrupt or liquidate assets. Continue reading...
What is Investment Interest Expense?
IIE is deductible from taxes, and is usually used to deduct the interest paid on a margin loan used to buy taxable securities, when there is a gain to offset. Investment interest expense is the term for interest which has been paid in order to hold an investment position. It comes into play when filing taxes. An individual can list interest expenses on a Form 1040. The most common place to incur an interest expense when investing is through the use of margin in an investment account. Continue reading...
What is Form 1099-DIV?
IRS Link to Form — Found Here Form 1099-DIV is used to report dividend income and distributions from investments, and is usually filed by the company making the distribution. The taxpayer will only use the form as a reference for reporting on other forms, such as the Schedule B if the distributions are over $1,500. Mutual funds are a common source of the 1099-DIV, since they have to distribute their gains to shareholders every year. Continue reading...
Why Do You Want to Own the Shares of a Publicly Traded Corporation?
The idea is that a shareholder’s interest in a growing publicly traded company will become more valuable over time. The simplest answer is: to make money! Owning shares of a company’s stock is known as taking a long position, and this is done in the belief that the company is going to increase its earnings and profit margin into the future, or will at least remain steady. There are three ways to make money on stocks: Continue reading...