What are dividends received by deduction?

Dividends received by the deduction is a specific term of the US federal regulations on income tax. It refers to a deduction granted a corporation to cover dividends received from another company, which partially owns. As a result, this is a rare example of a deduction applied to the money received by the taxpayer rather than spent. The purpose of the dividends received is to repeatedly reduce the effects of the same money. American policy allows double taxation, which is the circumstance of which the profits of the company are taxed, and then shareholders are taxed from dividends they receive from profits after the taxation of society. Without the dividends received, there would be another layer of taxation: the tax would be withdrawn from the company's profits, the dividend paid by the second corporation with the ownership share in the first corporation and dividends paid by the second company to individual shareholders.

There are three levels of the day have received a deduction. If a corporation owns less than 20% of shares in another corporation, can deduct 70% of any dividends receivedCH from this shares from its own taxable income. If the company owns more than 20% of shares in another corporation, the share of dividends that can be deducted will increase to 80%. If the company owns more than 80% of shares in another corporation, it can deduct dividends in its entirety.

There are some restrictions on deductions. If the company is to deduct 70% or 80% of dividends from its taxable income, the deduction must not exceed 70% or 80% of its own taxable income. This means that in a situation where society receives more dividends than in its own profit before tax, it will be able to indicate zero value for a taxable income in a year, but the excess deduction will be ignored. The company is allowed to deduct the entire dividend amount may indicate a negative taxable income, which means that part of the "loss" will usually be transferred and compensated against income data next year.

dividends received by deductionY applies only to stocks held by the corporation for at least 45 days. This period cannot cover in any way during which the company had the right or the possibility to sell shares at a fixed price. The principle of this rule is that the benefits of the deduction are only available to corporations that carry the risks of own ownership of shares.