Question

Dividends Received Deduction Describe how the Dividends Received Deduction serves to mitigate triple taxation. Specifically comment on the criteria for claiming the DRD and the % ownership and rates that apply. Be sure to use the updated percentages under the TCJA

Answer 1

Answer:

Let us initially comprehend the accompanying circumstance expecting there was no concept of Dividends received deduction( DRD ).

ABC holds 80% in DEF which holds 75% in XYZ. XYZ declares profits/dividends. In such a case triple taxation would happen.

• XYZ will pay taxes on its revenue without deducting the profit.
• DEF would pay taxes on the dividend income and
• ABC would pay taxes when it would get the profit.

In the above manner , A equivalent income is taxed thrice.

Dividends received deduction assists with moderating this triple tax assessment.

DRD permits the organization that gets a profit/dividend from another organization to deduct that profit from its taxable income and diminish its taxation rate.

The accompanying guidelines must be remembered however

• General guideline - Dividends received deduction = 70% of dividend received
• On the off chance that receiver's possession is between 20% to 80%, at that point Dividends received deduction = 80% of dividend recevied
• On the off chance that receiver's possession is over 80%, at that point Dividends received deduction = 100% of dividend received