For tax years beginning after 2012, the Relief Act increased the top rate for qualified dividends from 15% to 20%. Adding the new 3.8% surtax on investment-type income and gains pushes the top post-2012 rate for higher-income S corporation shareholders to 23.8%. Fortunately, several elections can be made on Form 1120S that would enable S corporations to distribute some or all of their Accumulated Earnings and Profits, which cause dividend taxation, so the dividend would be taxed at 2012′s low 15% maximum tax rate. The elections are made on Form 1120S for the year of the distribution(s), which means they can represent a great post-2012 planning opportunity in the right circumstances.
S Corporation elections