How are dividends received by shareholders typically taxed?

Dividends received by shareholders may be subject to taxation that differs from ordinary income, which is why option B is correct. In many jurisdictions, dividends are treated as passive income and can be eligible for a lower tax rate compared to regular salary or wages. Furthermore, there is often a tax-free allowance or a specific threshold before the dividend income is taxed, allowing shareholders to benefit from a portion of their dividend income without incurring tax.

This differentiated treatment is designed to avoid double taxation on corporate profits, as the corporation itself has already paid corporate tax on its earnings before distributing dividends to shareholders. As a result, shareholders may enjoy favorable tax rates on dividends, which is particularly applicable to qualified dividends in certain tax systems.

Other options do not accurately capture the nuances of dividend taxation. For instance, taxation at the same rate as ordinary income would imply that dividends are treated uniformly, disregarding the potential for lower tax rates. Stating that dividends are not taxed at all misrepresents the treatment of dividend income, as it is typically subject to some level of taxation. The notion that dividends are taxed at a higher rate than other income also contradicts the prevailing rules in many tax systems that favor dividend income with preferential rates.