Question

2012 Corporate Tax Rate Schedule (partial)
Taxable Income Greater Than	But Less Than Or Equal To	Tax Is	Of the amount exceeding
$0	$50,000	15%	$0
$50,000	$75,000	$7,500 + 25%	$50,000
$75,000	$100,000	$13,750 + 34%	$75,000
$100,000	$335,000	$22,250 + 39%	$100,000

JKEB Corporation has the following revenues and expenses for the current tax year:

Sales revenue, net of returns . . . . . . . . . . . . . . . . . . . . . . . . . . .             $100,000

Dividend Income (less than 20% owned investees) . . . . . . . . . .         25,000

Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           30,000

Normal business expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         40,000

1.     What is JKEB Corporation’s dividends-received deduction for the current tax year?

Assuming that JKEB Corporation’s normal business expenses were $82,000 instead of $40,000, compute its dividends-received deduction

1.     for the current tax year.

Answer 1

Solution:

1).

From the given data the JKEB corporation's ownership is less than 20% in the investee companies.

Therefore, dividends received deduction would be 70% of the devidends received.

Dividends received deduction =$25000 * 70%= $17500

2).

JKEB corporation's net loss = sales - cost of sales - business expenses

we know sales= $100000, cost of sales = $30000 and business expenses = $82000

= $100000 - $30000 - $82000

= $12000

• When the dividends received by JKEBcorporation is added to the net loss, its income becomes $13000.
•    Incase of company's making loss ,dividends received deduction is 80%of the company's income after adding the dividends received by it.

Therefore in this case , dividends received deduction = $13000 * 80% = $10400

so finally, Dividends received deduction is $10400