CMA Study Group

Hi all, 

     on the SU 4, part two, it states that one major advantage of prefer stock over bond to holders is the prefer stock dividend is tax deductible. but. I look it up online, neither for issuer nor holder, the dividend will be tax deductible. could anyone explain if the prefer stock dividend is tax deductible or not? 

                          thank you in advance. 

Preferred dividend is taxable only if it is qualified by IRS but the tax rate is lower comparatively with the ordinary income. The tax rate is 0% to 20% .

For the issuer, the dividends are not tax deductible since it's distributed from RE.

Interest for Bonds are deducted as interest expense thus, it's deducted from Operating income subject to tax. It's tax deductible.