Question

The Dawg corporation owns 16% of Company A and 27% of Company B. Dividends received from Company A were $106,000 and from Company B were $202,000. If Dawg's taxable income not including the dividends is $2,000,000, calculate Dawg's taxable income after including the dividend information.

Answer 1

Note :

• If a corporation owns less than 20 % of another owns 's common stock , then the corporation can deduct 70 % of dividends received. Thus amount of dividends received by Company A to be included in Dawg's taxable income =  $106,000 * 30 % = $31,800
• If a corporation owns between than 20 % to 80 % of another owns 's common stock , then the corporation can deduct 80 % of dividends received. Thus amount of dividends received by Company B to be included in Dawg's taxable income = $202,000.* 20 % = $40,400

Answer :

Dawg's taxable income after including the dividend information = $2,000,000 + $31,800 + $40,400 = $2,072,200