Question

The income base used to calculate the dividends received deduction limitation is the:

1) modified taxable income calculated as taxable income before the DRD but after capital loss carrybacks and NOL carryforwards
2) same as the charitable contributions limit
3) modified taxable income calculated as taxable income after the DRD but before capital loss carrybacks and NOL carryforwards
4) modified taxable income calculated as taxable income before the DRD, capital loss carrybacks, and any NOL carryforward

Answer 1

The income base used to calculate the dividends received deduction limitation is the modified taxable income calculated as taxable income.

Step-by-step explanation:

The income base used to calculate the dividends received deduction limitation is the modified taxable income calculated as taxable income before the DRD, capital loss carrybacks, and any NOL carryforwards. This means that the calculation is done before taking into account any deductions or exemptions.

The dividends received deduction (DRD) itself is a tax benefit that allows corporations to deduct a portion of the dividends received from other corporations when calculating their taxable income. For example, let's say a corporation receives $100,000 in dividends from another corporation.

If the DRD is 50%, the corporation can deduct $50,000 from its taxable income. However, the limitation on this deduction is based on the modified taxable income, which is calculated before taking into account the DRD, capital loss carrybacks, and any net operating loss (NOL) carryforwards.