Companies' Last Tax Dodge of 2012: Paying Out December Dividends

Ethan AllenEthan Allen was a businessman, a writer, and an American Revolutionary War hero. He's generally portrayed as a patriot.

Can the same be said about Ethan Allen Interiors (ETH)?

The furniture retailer became the latest company to move up a quarterly distribution to December -- a move that will help shareholders avoid inevitable tax increases on qualified payouts come 2013.

That's not all. Ethan Allen on Monday also declared a special dividend of $0.41 a share that will be paid out in December, serving up an additional disbursement that will be taxed at kinder 2012 rates.

Dividends Going Over the Fiscal Cliff

Ethan Allen's news may not sound so bad at first. The high-end retailer is merely looking out for its shareholders. The tax rate on qualified dividends is an attractive 15 percent right now, but unless a bipartisan deal spares it, that rate will go up sharply for many investors.

If the temporary tax cuts are allowed to expire, the dividend rate may climb as high as nearly 39 percent for high-income earners -- and that rate goes up to nearly 43 percent once the new health care tax kicks in next year.

Ethan Allen's move is obviously the right one for its stakeholders, but what about from the country's tax-starved coffers. The money being saved by investors on taxes this year is money that won't be generated in tax revenue come 2013.

Is this move to benefit shareholders actually cheating the country?

December Is the New January

Companies historically declare this time of year, but they don't physically shell them out until early January. Pushing the implications of the taxable event into the following year was done for the benefit of the shareholders.

Now that tax rates on qualified distributions are on the way up, more and more companies are cutting dividend checks in late December. Some, like casino operator Wynn Resorts (WYNN) and gun maker Sturm Ruger (RGR), are taking an additional step, and will pay an even bigger one-time disbursement that will go out before tax laws get stiffer next year.

The more popular move, though, is for companies to simply move up their early January distributions to late December. Ethan Allen joins Walmart (WMT) and countless other companies making similar concessions in recent weeks.

Not another reason to protest Walmart

It's easy to bash Walmart these days. The world's largest retailer is an easy target. It gets taken to task for its employment practices, though no one is forcing anyone to work at the discount department store chain. It gets taken to task for opening early on Thanksgiving, but plenty of other retailers did the same thing -- and some employees probably appreciated the extra pay.

It's inevitable that Walmart will also become the poster child of any potential outcry of critics arguing that dividend distributions in December are cheating the country out of necessary revenue.

It's not fair. Companies serve their shareholders and their customers. They're not under a mandate to maximize tax liabilities. We also don't know what investors will do with the tax savings on the early and special dividends. One possible outcome is that investors will do a bit more holiday shopping this season than usual.

Companies didn't declare the class war or cause the fiscal cliff. They're just adapting to the implications.

Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article.

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These aren't the last "Tax Dodges of 2012", the 12/21/2012 "Dodge" allows you to zer out your taxes by getting a Unification Science Upgrade (to "Platinum Standard"), no need to Voluntarily Not Pay Any Because Your Grand Juries Don't Work Required....

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December 05 2012 at 4:23 PM Report abuse rate up rate down Reply

either way the govt taxes this money twice so everyone is already getting ripped off by uncle sam

December 03 2012 at 3:09 AM Report abuse rate up rate down Reply

how is giving the owners of a company their deserved profits a tax dodge? just like how is allowing people to keep more of their own money a wealth transfer to the rich?

December 03 2012 at 3:06 AM Report abuse rate up rate down Reply

If it is legal, what's the problem?

December 01 2012 at 10:31 AM Report abuse rate up rate down Reply
Ed Invests

More strange articles and strange arguments. The wealthy have been doing large donations forever to avoid having the money taxed. The companies are doing as much as they can for the shareholder and I, for one, appreciate it. A far better way to raise money would to be to eliminate the tax exempt status for churches. Please don't whine and respond about all of the good they do. I have seen the lavish lifestyle of the heads of Megachurches. I am sure those guys are laughing about the idea of any tax increase. It seems only fair to tax them if they continue to push their "moral" agenda into government and help fund candidates that support the same. Same goes for "save the children" fund and others that have huge budgets far exceeding what goes to the cause.

November 29 2012 at 11:07 PM Report abuse +3 rate up rate down Reply

Tax dodge? Let's give it all to the government and let them decide how much we should have.

November 29 2012 at 8:31 PM Report abuse -1 rate up rate down Reply

I own NO Eathan Allen stock.That said, WHY, why is a private company expected to help the politicians with their insatiable apetite for more and more tax dollars? These people are like hard core drug addicts with absolutelty NO desire to go into rehab.

November 29 2012 at 8:24 PM Report abuse +2 rate up rate down Reply

I am still waiting for the President to tell us how raising taxes on people making more than $250k per year is going to create more jobs. I am sure that Reid or Pelosi can explain this. In the meantime, I am aware of a number of small business owners making between $250k and $500k who are making plans to reduce their number of employees. I am also aware of a number of top notch doctors who are in their sixties who are planning to retire at the end of 2013, before Obamacare fully kicks in. Obama played to the lowest common denominator (intelligence-wise) during the election and he continues his campaign even after getting four more years.

November 29 2012 at 6:46 PM Report abuse rate up rate down Reply
1 reply to clyogi's comment

when did tax cuts for the rich create jobs? Small business owners making $250K to $500K a year are going to cut employees? How much do they need to make, I don't make any where near that as most middle class, sounds like greed at its best. Doctors in there 60s are going to retire because of Obama care I don't think so.

November 30 2012 at 6:11 AM Report abuse rate up rate down Reply
1 reply to ualfriend's comment

clyogi is right. small business owners are and will cut employees. And yes Doctors are quitting because of socailist medicine. ualfreak, have never been self employed.

November 30 2012 at 8:03 PM Report abuse rate up rate down

Is paying in Dec. cheating a tax starved Government Hell no, The Government is not starved its obese inspending. It could use a trimming. What about not raising tax on people who earn less than $250,000?

November 29 2012 at 12:42 PM Report abuse +4 rate up rate down Reply

There is the saying "I love my country but fear my government."

November 29 2012 at 11:46 AM Report abuse +1 rate up rate down Reply