Fisafolia Corporation has gross income from operations of $210,000 and operating

Question

Fisafolia Corporation has gross income from operations of $210,000 and operating expenses of $160,000 for the current year. The corporation also has $30,000 in dividends from publicly traded domestic corporation in which the ownership percentage was 45%. a. Calculate the corporation's dividends received deduction for the current year. b. Assume that instead of $210,000, Fisafolia Cororation has gross income from operations of $135,000. Calculate the corporation's dividends received deduction for the current year. c. Assume that instead of $210,000, Fisafolia Corporation has gross income from operations of $158,000. Calculate the corporation's dividends received deductions for the current year.

Explanation / Answer

The amount of Dividend Received Deduction available depends upon the percentage of ownership in the company paying dividend.

If the ownership is less than 20%, then the Dividend Received Deduction shall be 70% of the dividend received.

If the ownership is 20% or more but less than 80%, then the Dividend Received Deduction shall be 80% of the Dividend Received.

If the ownership is more than 80%, then the Dividend Received Deduction shall be 100% of the Dividend Received.

But if the Net Income including Dividend is less than the amount of Dividend, then the Deduction shall be limited to 70/80/100% of the Net Income.

In the given case, Fisafolia Corporation has 45% ownership.

Hence the Deduction shall be 80% of the dividend received.

(a) Net Income = (210000-160000) + 30000 ( Dividend ) = 80000

Dividend Received Deduction= 80%*30000 = 24000

(b) Net Income = (135000-160000) + 30000 = 5000

Since the Net Income including Dividend is less than the amount of Dividend Received, Dividend Received Deduction shall of 80% of Net Income.

Dividend Received Deduction = 80%*5000= 4000

(c) Net Income = (158000-160000) + 30000 = 28000

Since the Net Income including Dividend is less than the Dividend Received, Dividend Received Deduction shall be limited to 80% of Net Income.

Dividend Received Deduction = 80%*28000 = 22400

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