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 none of the corporate shareholders owns 20% or more of the stock in the corporations paying the dividends.

100,000

a. The dividends received deduction for Almond Corporation is $

b. The dividends received deduction for Blond Corporation is $

c. The dividends received deduction for Cherry Corporation is $

Almond
Corporation Blond
Corporation Cherry
Corporation Income from operations $700,000 $800,000 $900,000 Expenses from operations (600,000) (800,000) (910,000) Qualifying dividends 100,000 100,000

100,000

Explanation / Answer

Answer

Step 1
(1)70% × $100,000 (dividend received) $70,000
(2)70% × $100,000 (dividend received) $70,000
(3)70% × $100,000 (dividend received) $70,000

Step 2
(1)70% × $200,000 (taxable income before DRD) $140,000
(2)70% × $50,000 (taxable income before DRD) $35,000
(3)70% × $90,000 (taxable income before DRD) $63,000

Step 3
Lesser of Step 1 or Step 2 (1)$70,000 (3)$63,000
Generates a net operating loss (use Step 1) (2)$70,000

1.Consequently, the dividends received deduction for Almond Corporation is $70,000 under the general rule.

2.Blond Corporation also claims a dividends received deduction of $70,000 because a net operating loss results when the Step 1 amount ($70,000) is subtracted from 100% of taxable income before DRD ($50,000).

3.Cherry Corporation, however, is subject to the taxable income limitation and is allowed only $63,000 as a dividends received deduction.

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