Can Form 1120 C Dividends 2023-2024

Alright, in this lesson, we're going to talk about the dividends received deduction and what it means and how to calculate it. So why do we have this dividend received deduction for taxes? Well, it comes down to this: let's say Corporation A decides to partner up with another corporation or even buy another corporation. They own twenty percent of Corporation B, and Corporation B also owns twenty percent of Corporation C. Now, if Corporation C makes money, let's say ten thousand dollars, twenty percent of that in a dividend would go back to Corporation B, which is four hundred dollars. The same thing would happen, and another four hundred dollars would go to Corporation A. However, the problem is that corporations don't receive preferential tax treatment. Unlike individuals who receive a dividend from a corporation at a preferential rate, corporations have to pay taxes on all dividends at ordinary rates. Therefore, the four hundred dollars that Corporation B received from Corporation C now becomes ordinary income and they have to pay taxes on that amount. So, we have double taxation. Corporation B would then send a dividend of two thousand dollars to Corporation A. Corporation A would also have to pay taxes on that amount. This creates a triple or quadruple tax issue, as the same money is being taxed again and again before it even reaches its final destination. To address this issue, Congress created the dividend received deduction, which is a tax break given to corporations. Let's consider the example of a thousand-dollar C Corp that distributes that amount to B Corp. Depending on the ownership, corporations can take a seventy percent, eighty percent, or one hundred percent dividend received deduction. This deduction reduces the taxable amount, resulting in lower taxes. For example, if the C Corp...