Constructive dividend

Tax Glossary Definition

Constructive dividend

Constructive Dividend – A constructive dividend arises when a corporation confers an economic benefit upon a shareholder without formally declaring a dividend. These benefits, which effectively transfer corporate value for personal use, can include excessive compensation, payment of personal expenses, or use of company assets for non-business purposes.

Example: If a corporation covers a shareholder’s personal vacation costs, the amount may be classified as a constructive dividend for tax reporting.

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