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.

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

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 $

Answer 1

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

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

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

Corporation / Description	Oak	Elm	Mahogany
Income from operation	650000	900000	825000
Expenses from operation	(525000)	(850000)	(800000)
Net income from operation	125000	50000	25000
Qualifying Dividend	100000	100000	100000
Net taxable income including dividend	225000	150000	125000

(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