In: Accounting
Determine the amount of the dividends received deduction in each of the following instances. In all cases, the net income figure includes the full dividend.
Dividend of $10,000 from a 45% owned corporation; taxable income before DRD of $50,000.
Dividend of $19,000 from a 15% owned corporation; taxable income before DRD of $75,000.
Dividend of $22,000 from a 60% owned corporation; taxable income before DRD of $11,000.
Dividend of $8,000 from a 10% owned corporation; taxable income before DRD of $7,000.
Answer:a. No limitation. The DRD is $10,000 x 80% = $8,000.
b. No limitation. The DRD is $19,000 x 70% = $13,300
c. The DRD is not limited. This is an 80% DRD entity. Thus, if income before DRD is between $22,000 (100% of the dividend) and $17,600 (80% of the dividend), the DRD will be limited. Such is not the case. Thus, the DRD is $22,000 x 80% = $17,600.
d. The DRD is limited. This is a 70% entity. If income before DRD is between $8,000 (100% of the dividend) and $5,600 (70% of the dividend), the DRD will be limited. Because income is between those endpoints, the DRD is limited to 70% of income, or $4,900.