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aimtobeacpa
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Joined: 10 Dec 2009
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Posted: 27 May 2011 at 15:00 \| IP Logged

Massive Corporation, a domestic corporation, had sales this year of $800,000 and operating expenses of $815,000. In addition, the company received dividends of $100,000 from Sun Corporation, another domestic corporation, in which it held 17 percent of the outstanding stock. What taxable income should Massive report for this year?
The company's income is $85,000. This amount is the sales revenues of $800,000 plus dividends of $100,000 less operating expenses of $815,000. Because dividends were collected by one domestic corporation from another, a dividends received deduction is allowed. For ownership of under 20 percent, this deduction is 70 percent. This percentage is taken on the lower of the dividend ($100,000) or the income ($85,000). Thus the dividends received deduction here is 70 percent of $85,000 or $59,500. This dividends received deduction reduces taxable income from $85,000 to $25,500. The dividends received deduction would have been based on the dividend if that deduction created a taxable loss or made a taxable loss larger. Because a deduction of $70,000 (70 percent of $100,000) does not turn the $85,000 into a loss, the dividends received deduction is based on the lower number.

The Albatross Corporation, a domestic corporation, had sales this year of $700,000 and operating expenses of $580,000. In addition, the company received dividends of $30,000 from Neck Corporation, another domestic corporation, in which it held 19 percent of the outstanding stock. What taxable income should Albatross report for this year?

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The company's income is $150,000. This amount is the sales revenues of $700,000 plus dividends of $30,000 less operating expenses of $580,000. Because dividends were collected by one domestic corporation from another, a dividends received deduction is allowed. For ownership of under 20 percent, this deduction is 70 percent (or $21,000 of the $30,000 dividend). This dividends received deduction reduces taxable income from $150,000 to $129,000. For ownership of 20 percent up to 80 percent ownership, the dividends received deduction is 80 percent. For ownership of 80 percent or more, the dividends received deduction is 100 percent.

when should drd be based on income and when on dividend...in both prob its different

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thechamp26
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Joined: 11 Aug 2010
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Posted: 28 May 2011 at 15:38 \| IP Logged

Use the lesser of the dividends received or taxable income
in most cases when your taxable income after subtracting
either is positive. However, if the DRD will put you in a
loss position, you use that.

Shayne
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Joined: 21 Aug 2008
Location: United States
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Posts: 25

Posted: 29 May 2011 at 20:59 \| IP Logged

if the income before drd is between the dividend amount and the "normal" DRD, then you should use the percentage of the income before DRD. if not, then use the percentage of the dividend.

for example, say the dividend amount from a 12% interest is $100 and the income before DRD is $86. Normally, the DRD amount would be $70 ($100 x 70%), but in this case, the percentage would be applied to the income before DRD, roughly $60 ($86 x 70%), because $86 falls between the dividend amount, $100, and the "normal" DRD, $70.

hope that wasn't too confusing.

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