Question

15) Calculate Barn Door Corp's dividend received deduction based on the following facts:

* Barn Door Corp owns 50% of Tractor Corp

* Income of Barn Door Corp (before dividend received) $900

* Dividend received by Barn Door Corp from Tractor Corp $450

* Expenses of Barn Door Corp $300

Answer 1

Dividend Received Dedcution is available to only C Corporation. Where the percentage of ownership is between 20% and 80%, the deduction entitled would be 80% of dividend received or 80% of the taxable income whichever is lower.

Taxable Income = Income (before dividend received) + Dividend received - Expenses

= $900 + $450 - $300

= $1,050

80% of Taxable Income = 80% of $1,050

= $840

Dividend Received = $450

80% of Dividend Received = 80% of $450

= $360

Dividend Received Deduction = 80% of dividend received or 80% of the taxable income whichever is lower

= $360 or $840 whichever is lower

= $360.