Craig Corporation realizes $150,000 from sales during the current year. Craig also receives $20,000 of dividends from a 3% owned corporation. Operating expenses totals $155,000. Craig's dividends-received deduction is
A)$7,500
B)$9,750
C)$10,000
D)$13,000
E)$20,000

Question

Quizplus · Accepted Answer

The dividends-received deduction for a corporation with less than 20% ownership is 50% of the dividends received. Therefore, 50% of $20,000 is $10,000. However, the deduction is limited to 50% of taxable income before the deduction, which is $150,000 - $155,000 = -$5,000 (a loss), so the deduction is limited to $7,500 (50% of $15,000, the positive portion of taxable income before the deduction).

Craig Corporation Realizes $150,000 from Sales During the Current Year