In the current year,Auburn Corporation (a calendar year taxpayer),has the following income and expenses: Auburn Corporation owns 20% of the stock in Blond Corporation.The dividends received deduction for the current year is:

Question

In the current year,Auburn Corporation (a calendar year taxpayer),has the following income and expenses:  Auburn Corporation owns 20% of the stock in Blond Corporation.The dividends received deduction for the current year is:

Quizplus · Accepted Answer

The dividends received deduction (DRD) is calculated as follows:

DRD = lesser of (a) dividend received or (b) taxable income x (applicable percentage)

In this case, Auburn Corporation received $200,000 in dividends from Blond Corporation, but the lesser of (a) or (b) is $160,000 since Auburn Corporation has taxable income of $800,000 (before the DRD). The applicable percentage for dividends from a 20% owned domestic corporation is 80% (100% - 20% ownership).

Therefore, the DRD is $160,000, which reduces Auburn Corporation's taxable income to $640,000.

In the Current Year,Auburn Corporation (A Calendar Year Taxpayer),has the Following