In: Accounting
Delta corporation owns 2% of the stock in a U.S. corporation Azul. It receives a dividend from that corporation of $100,000. Delta has $3 million of taxable income not including the dividend from Azul.
a) Suppose that before the dividends Delta had a taxable loss from all other activities of ($40,000). How much gross income from the dividend does Delta report?
b)What if Delta’s taxable loss before dividends was ($55,000) would your answer change and if so how?
a) As per IRS rule, if a corporation receives dividend from a corporation having a stake of less than 20%, it will get 70% dividend received deduction. So, taxable dividend income is:-
= 100,000 - 100,000(70%)
= 30,000
Since, delta corporation falls in the bracket of 35%, his dividend income will be taxed at 20% (Because it is qualified dividend)
According to the Internal Revenue Service, an investor "must have held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date" to be considered a qualified dividend.
So, gross income = Taxable income + Dividend income - Taxable loss
= 3000000+30,000-40,000
=2990000 which will be taxed as,
30000 @ 20% and 2960000 @ 35%.
b) If delta's taxable loss is $ 55,000:-
Gross income = 3000000+30000-55000
= 2975000 which will be taxed as,
30000 @ 20% and 2945000 @ 35%.