Question

Ski Corporation owns 30 percent of Snow Corporation. Snow pays Ski a dividend of $20,000. What is the amount of Ski's dividend's received deduction (assume the taxable income limitation does not apply?

A. None of these
B. $20,000
C. $13,000
D. $16,000
E. $10.000

Answer 1

For the $20,000 dividend that Ski Corporation receives from Snow Corporation, the dividend's received deduction is typically 80% given Ski's 30% ownership stake in Snow Corporation. The deduction amount for Ski Corporation would be $16,000. Therefore, the correct answer is D. $16,000.

Step-by-step explanation:

The question asks about the number of dividends received deduction Ski Corporation can take for the dividend it receives from Snow Corporation, in which it owns a 30% stake. Generally, under the U.S. tax code, a company can get dividends received deduction (DRD) for a certain percentage of the dividends it receives from other U.S. corporations, depending on the percentage of ownership it has in the distributing corporation.

The DRD helps to prevent triple taxation—once at profits, once when dividends are paid out, and once when the dividends are received by another corporation.

In this case, given that Ski Corporation owns only 30% of Snow Corporation and assuming no special tax treatments or specific provisions apply, Ski Corporation can typically deduct 80% of the dividends received.

This percentage is based on the common tax treatment for dividends received by corporations with less than 20% ownership, but more than 0%. Therefore, the calculation for the dividend received deduction Ski is eligible for would be: $20,000 (dividend received) × 80% = $16,000. So, the correct answer to the question is D. $16,000.