Final answer:
The Dividends Received Deduction is limited by the taxpayer's percentage of taxable income that aligns with the deduction percentage, important for shareholders receiving profits through dividends from stable companies.
Step-by-step explanation:
The Dividends Received Deduction is limited to the percentage of taxable income that corresponds to the deduction percentage. When a company pays a dividend, this signifies the distribution of some of its profits to its shareholders based on the number of shares they own. For example, with a dividend of 75 cents a share, an individual owning 85 shares would receive a portion of the company's profits. Companies known for providing consistent dividends include stable entities like Coca-Cola and electric utilities. Individuals often hold these dividend-yielding stocks for extended periods due to their stable returns.
When a company pays a dividend, it gives a portion of its profits directly to the stock owners. The dividends received deduction allows shareholders to reduce their taxable income by a percentage of the dividends they receive.