Fisafolia Corporation has gross income from operations of 21

Fisafolia Corporation has gross income from operations of $210,000 and operating expenses of $160,000 for the current year. The corporation also has $30,000 in dividends from publicly traded domestic corporation in which the ownership percentage was 45%. a. Calculate the corporation\'s dividends received deduction for the current year. b. Assume that instead of $210,000, Fisafolia Cororation has gross income from operations of $135,000. Calculate the corporation\'s dividends received deduction for the current year. c. Assume that instead of $210,000, Fisafolia Corporation has gross income from operations of $158,000. Calculate the corporation\'s dividends received deductions for the current year.

Solution

The amount of Dividend Received Deduction available depends upon the percentage of ownership in the company paying dividend.

If the ownership is less than 20%, then the Dividend Received Deduction shall be 70% of the dividend received.

If the ownership is 20% or more but less than 80%, then the Dividend Received Deduction shall be 80% of the Dividend Received.

If the ownership is more than 80%, then the Dividend Received Deduction shall be 100% of the Dividend Received.

But if the Net Income including Dividend is less than the amount of Dividend, then the Deduction shall be limited to 70/80/100% of the Net Income.

In the given case, Fisafolia Corporation has 45% ownership.

Hence the Deduction shall be 80% of the dividend received.

(a) Net Income = (210000-160000) + 30000 ( Dividend ) = 80000

Dividend Received Deduction= 80%*30000 = 24000

(b) Net Income = (135000-160000) + 30000 = 5000

Since the Net Income including Dividend is less than the amount of Dividend Received, Dividend Received Deduction shall of 80% of Net Income.

Dividend Received Deduction = 80%*5000= 4000

(c) Net Income = (158000-160000) + 30000 = 28000

Since the Net Income including Dividend is less than the Dividend Received, Dividend Received Deduction shall be limited to 80% of Net Income.

Dividend Received Deduction = 80%*28000 = 22400