Jazz Corporation owns 10% of the Williams Corp. stock. Williams distributed a $10,000 dividend to Jazz Corporation. Jazz Corp.'s taxable income (loss) before the dividend was ($2,000). What is the amount of Jazz's dividends received deduction on the dividend it received from Williams Corp.?

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The dividends received deduction is equal to the lesser of 50% of the dividend received or the percentage ownership times the dividend received. In this case, Jazz Corp. owns 10% of Williams Corp., so its ownership percentage times the dividend received of $10,000 is $1,000. Since 50% of $10,000 is $5,000, the lesser of the two is $1,000. Therefore, Jazz Corp. can take a $1,000 dividends received deduction, which reduces its taxable income (loss) from ($2,000) to ($1,000).

Jazz Corporation Owns 10% of the Williams Corp