Which type of income is most susceptible to double taxation?

Dividends from corporations are most susceptible to double taxation due to the way corporate income is taxed at both the corporate and individual levels. When a corporation earns profits, it pays corporate income tax on those profits. After this taxation, the corporation may distribute some of the remaining profits to its shareholders in the form of dividends. When shareholders receive these dividends, they must report this income on their personal tax returns, leading to an additional layer of taxation.

This structure creates a situation where the same income is taxed twice: once at the corporate level and once at the individual level when dividends are distributed to shareholders. This phenomenon specifically highlights the issue of double taxation associated with dividend income, making it distinct from other types of income such as interest from savings accounts, income from small business partnerships, or rental income, which generally do not have this layered tax structure.