Dividends-received deduction

(redirected from Dividends-Received Deductions)

Dividends-received deduction

A corporate tax deduction on income allowed by company A that is in ownership of shares of company B and receives dividends on the shares of company B.

Dividends-Received Deduction

A reduction in the taxable income of a company when it receives dividends from stock it owns in another company. A company is eligible for a 70% dividends-received deduction if it owns less than 20% of the second company, 80% if it owns between 20% and 80% of the company, and 100% if it owns more than that. A dividends-received deduction exists in order to reduce the effects of triple taxation on publicly-traded companies; that is, the company must pay corporate taxes and its shareholders must pay capital gains taxes. The dividends-received deduction allows companies to mostly avoid a third tax on the same earnings.
References in periodicals archive ?
246A, corporations that borrowed money to finance stock purchases could combine the interest-expense and dividends-received deductions (DRDs) to receive a double deduction, allowing them to virtually eliminate their tax liability on debt-financed dividend income.
Statutory changes (31) allow taxpayers to elect to claim dividends-received deductions (DRDs) from insurance companies at least 80% owned for years open to statute ending on or after Dec.
1374-2 (a) (2) defines the taxable income limitation as the S corporation's taxable income determined by using all rules applying to C corporations, but without regard to the net operating loss (NOL) and dividends-received deductions.
corporations generating income in the form of dividends entitled to dividends-received deductions, and other similar items.