The Dividend-Received Deduction is a specific provision in the Internal Revenue Code that enables corporate shareholders to decrease their tax liability on dividends received from US-based companies.
The dividend-received deduction is a tax incentive that enables a corporation to lower its taxable income by the amount of dividends received from another domestic corporation. This deduction is authorized by sections 243-247 of the Internal Revenue Code (IRC). For instance, if ABC Inc. owns 1,000 shares of XYZ Inc. and receives a $10,000 dividend from XYZ Inc., ABC Inc. can claim a dividend-received deduction of $9,000 (90% of $10,000) on its tax return. Consequently, ABC Inc. will only be taxed on $1,000 of the dividend income instead of the full $10,000. The purpose of this deduction is to incentivize corporations to invest in other domestic corporations. By allowing the receiving corporation to reduce its taxable income by a percentage of the dividend income received, such as in the example above, the deduction helps alleviate the tax burden on corporations and promotes investment in the domestic economy.
The Dividend-Received Deduction (DRD) is a tax provision that allows corporations to deduct a percentage of the dividends they receive from other corporations when calculating their taxable income.
The amount that can be deducted under the DRD varies depending on the ownership percentage of the receiving corporation. Generally, the deduction is 50% for corporations that own less than 20% of the distributing corporation, and 65% for corporations that own 20% or more.
Yes, there are certain restrictions on which dividends can be deducted under the DRD. For example, dividends from foreign corporations may not be eligible for the deduction.
No, S corporations are not eligible to claim the DRD. The deduction is only available to C corporations.
Yes, there are limitations on the amount of DRD that can be claimed. The deduction cannot exceed the taxable income of the receiving corporation, and there are also limitations based on the type of income and the tax status of the distributing corporation.
Yes, any unused DRD can be carried forward for up to 10 years and carried back for up to 3 years.
Yes, corporations must report the DRD on their tax return and provide documentation to support the deduction.
No, the DRD only applies to dividends received from other corporations.
In some cases, dividends received from foreign corporations may be eligible for the DRD, but there are additional requirements and limitations for claiming the deduction on foreign-source dividends.
Yes, the DRD can generally be claimed in addition to other tax deductions or credits, but there may be limitations or restrictions based on the specific tax provisions involved.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 16th April 2024.
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