During the current year, Timepiece Corporation has operating income of $460,000 and dividend income of $70,000 from 45% owned domestic corporations. Total operating expenses for the year are $470,000. What is Timepiece's dividends-received deduction for the current year?
A)$- 0 -
B)$39,000
C)$45,500
D)$60,000
E)$70,000

Question

Quizplus · Accepted Answer

The dividends-received deduction for dividends from domestic corporations in which the ownership is less than 80% but at least 20% is 65% of the dividends received. Since Timepiece Corporation owns 45% of the domestic corporations, it qualifies for this deduction rate. Therefore, the dividends-received deduction is 65% of $70,000, which equals $45,500. However, the deduction cannot exceed the corporation's taxable income. Timepiece's taxable income before the dividends-received deduction is calculated as operating income ($460,000) minus operating expenses ($470,000), which equals -$10,000, but then you add the dividend income of $70,000 for a taxable income of $60,000 before the dividends-received deduction. Since the calculated deduction of $45,500 does not exceed the taxable income of $60,000, the correct dividends-received deduction is $45,500, but due to my mistake in interpreting the options, the correct answer reflecting the explanation is actually not listed as per my initial calculation. The correct calculation based on the given options and the mistake in my explanation should lead to the correct choice reflecting the rules for the dividends-received deduction, which would be based on the applicable percentage of the received dividends without exceeding the corporation's taxable income. Given the error in the initial explanation, the correct answer based on the standard rules and the options provided would be reconsidered under the correct application of tax laws and the dividends-received deduction percentage.

During the Current Year, Timepiece Corporation Has Operating Income of $460,000