In 2014, Parvifolia, Inc. had $400,000 of revenue from operations and $160,000 of dividends from non-affiliated 15 percent-owned domestic corporations. The corporation's deductible operating expenses totaled $410,000. What is Parvifolia, Inc.'s dividends received deduction for 2014?

Question

Quizplus · Accepted Answer

The dividends received deduction (DRD) for a corporation owning less than 20% of another corporation is 70% of the dividends received. Therefore, the DRD is 70% of $160,000, which equals $112,000. However, since the corporation has an operating loss ($400,000 revenue - $410,000 expenses = -$10,000), the DRD is limited to 70% of the taxable income before the DRD, which is $0. Thus, the DRD is $112,000.