# How to calculate dividend income to shareholders in a C Corp?

Dividend income to shareholders in a C Corp first comes out of current earnings and profits, then accumulated earnings and profits. After both current and accumulated earnings and profits are completely liquidated, the distribution is a liquidating return of capital and a reduction in basis.

For example, if a corporation had current E&P of \$10,000 and accumulated E&P of \$30,000, and then paid a distribution of \$50,000, only \$40,000 would be considered taxable dividend income to shareholders. The excess \$10,000 distribution over current and accumulated E&P would be considered da reduction of basis or capital gain.

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