In the current year, Parvifolia, Inc.had $400,000 of revenue from operations and $160,000 of dividends from nonaffiliated 15-percent-owned domestic corporations.The corporation's deductible operating expenses totaled $410,000.What is Parvifolia, Inc.'s dividends received deduction for the current year?

Question

Quizplus · Accepted Answer

The dividends received deduction (DRD) for a corporation owning less than 20% of another corporation is 50% of the dividends received. Therefore, the DRD is 50% of $160,000, which is $80,000. However, the deduction is limited to 50% of the taxable income before the DRD, which is $400,000 - $410,000 = -$10,000. Since the taxable income is negative, the full $80,000 DRD can be taken, but it cannot create or increase a net operating loss. Thus, the DRD is $75,000, which is 50% of the $150,000 taxable income before the DRD.

In the Current Year, Parvifolia, Inc