In each of the following independent situations, determine the dividends receive

Question

In each of the following independent situations, determine the dividends received deduction for 2018.

Assume that Oak Corporation owns 25%, Elm owns 15% and Mahogany owns 80% of the stock in the corporations paying the dividends.

a. The dividends received deduction for Oak Corporation is $

b. The dividends received deduction for Elm Corporation is $

c. The dividends received deductino for Mahogany Corporation is $

Oak
Corporation Elm
Corporation Mahogany
Corporation Income from operations $650,000 $900,000 $825,000 Expenses from operations (525,000) (850,000) (800,000) Qualifying dividends 100,000 100,000 100,000

Explanation / Answer

For year 2018 dividend received deduction (DRD) is as follows

Owes less than 20% = 50%

Owes from 20% but less than 80% = 65%

Owes 80% or more = 100%

So percentage applicable of DRD on above case will be

Calculation of net taxable income for three corporation will be as follows

(A) Oak Corporation

DRD will be 65% of 100000 = 65000 but upto 65% of taxable income i.e. 65% of 225000 i.e. 146250 so it will be $65000

Taxable income before DRD = 225000

Less : DRD = 65000

Taxable income after DRD = 160000

(B) Elm Corporation

DRD will be 50% of 100000 = 50000 and upto 50% of 150000 = 75000, so DRD will be 50000

Taxable income before DRD = 150000

Less : DRD = 50000

Taxable income after DRD = 100000

(C) Mahogany Corporation

DRD will be 100% of 100000 = 100000 but upto 100% of 125000 = 125000, so DRD will be 100000 as follows

Taxable income before DRD = 125000

Less : DRD = 100000

Taxable income after DRD = 25000

Corporation Holding (%) DRD (%) Oak 25% 65% Elm 15% 50% Mahogany 80% 100%

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