Question

Jazz Corporation owns 10 percent of the Williams Corp. stock. Williams distributed a $14,000 dividend to Jazz Corporation. Jazz Corp.'s taxable income (loss) before the dividend was ($2,400). What is the amount of Jazz's dividends received deduction on the dividend it received from Williams Corp.?

Answer 1

Solution: The Answer is $ 7,000

Explanation:

1) Jazz Corporation owns 10 percent of the Williams Corp. stock. So, deduction percentage is 10%.

2) Jazz's dividends received deduction = $ 14,000 * 50% = $ 7,000.

3) New Deduction Percentage:

Percentage of Ownership	New Deduction Percentage
Less than 20%	50%
20% or more (but less than 80%)	65%
80% or more	100%

4) Limitation based on taxable income does not applies here.

5) Calculation is made based on new deduction percentages.