home
***
CD-ROM
|
disk
|
FTP
|
other
***
search
/
Cream of the Crop 1
/
Cream of the Crop 1.iso
/
BUSINESS
/
SBA62.ARJ
/
FSBA.EXE
/
F245.SBE
< prev
next >
Wrap
Text File
|
1992-04-30
|
3KB
|
76 lines
@051 CHAP 8
┌─────────────────────────────────────────────────┐
│ DIVIDENDS RECEIVED DEDUCTION FOR CORPORATIONS │
└─────────────────────────────────────────────────┘
Corporations (other than S corporations) are entitled to a significant
tax break on their investments in dividend-paying common or preferred
stocks. A so-called "C corporation" (which is simply a regular cor-
poration that hasn't made an S corporation election) gets to exclude
from taxable income 70% of the dividends it receives from another
corporation (80% if it owns 20% or more of the stock of the other
corporation). This can be a significant tax benefit of being a C
corporation if your company has funds to invest, as compared to an
S corporation or an unincorporated business.
┌───────────────────────────────────────────────────────────┐
│EXAMPLE: If your corporation receives $1,000 in dividends│
│from an investment in General Motors stock, only $300 would│
│be taxable for federal income tax purposes. Even if your│
│corporation were in the 34% corporate bracket, the federal│
│tax on those dividends would be 34% of $300, or $102, which│
│is a maximum effective tax rate of only 10.2% of the divi-│
│dends received. The effective tax rate would only be 4.5%│
│if the corporation is in the 15% tax bracket. │
└───────────────────────────────────────────────────────────┘
Note, however, that under the Tax Reform Act of 1984, this deduction
will be reduced if your corporation borrows money (on which it pays
interest) to purchase dividend-paying stocks.
@CODE: HI CA
@CODE:NF
DIVIDENDS RECEIVED DEDUCTION DIFFERS IN @STATE
@CODE:OF
@CODE: HI
Hawaii does not allow a "dividends received" deduction to corporations,
generally, unlike the federal 70% or 80% deduction. However, Hawaii
does allow an 80% dividends received deduction in certain limited situ-
ations, such as the following:
. Dividends received from banks and insurance companies doing
business in Hawaii;
. Dividends received from a corporation that does at least 15%
of its business in Hawaii; or
. Dividends received from a corporation that is 95%-owned by
corporations doing business in Hawaii, if the paying corporation
is subject to tax in another jurisdiction (another state, for
example).
@CODE:OF
@CODE: CA
California allows corporations a dividends received deduction of a
sort, which, as a result of 1990 legislation, is somewhat similar to
the 70% or 80% deduction allowed under the federal tax law. Under the
new California franchise tax law, the percentage of dividends received
that may be non-taxable is based on the percentage of the income of the
payor corporation that is subject to tax in California (a percentage
that can be obtained by contacting the California Franchise Tax Board),
which percentage, once determined, is then multiplied by another per-
centage, based on the amount of the stock of the payor that is owned by
the taxpayer corporation, as follows:
Over 50% of stock owned - 100%
20% to 50% stock ownership - 80%
Under 20% stock ownership - 70%
The resulting percentage is the portion of the total dividend that is
non-taxable to the recipient corporation under California tax law.