Question

Hirsch, Incorporated, is a calendar year corporation that has had revenues of less than $500,000 since inception. In 2017, Hirsch had a net operating loss that was able to be used in full via a carryback to 2016. For 2018, Hirsch expects to have taxable income of $100,000. How will Hirsch avoid a penalty for underpayment of estimated Federal taxes in the current year?

Answer 1

Taxable income will be $400,000

Step-by-step explanation:

As per IRS, the company receiving the dividend from any other comapany will get dividend received reduction (DRD) based on its % of holding. For a company holding less than 20% holding can get 70% deduction from the dividend received.

Income before DRD 400,000

Less DRD (70,000) (100000*70%)

Income after DRD 330,000

However, this DRD is special deduction given after the taxable income. so, taxable income will be $400,000