Video: Dividend Received Deduction

In this lesson, Nick Palazzolo, CPA, breaks down the dividends received deduction (DRD), a pivotal tax provision that helps C-Corporations avoid triple taxation by excluding a portion of their received dividends from taxable income. With great enthusiasm, Nick demystifies the DRD rates and limitations, urging to commit them to memory as they are essential for the exam. He walks through illustrative examples, highlighting the application of DRD based on varying ownership percentages and how it interacts with taxable income and net operating losses. Emphasizing practical scenarios, Nick clarifies the conditions under which the DRD can be applied, including the roles of personal service corporations, personal holding companies, and S-Corporations, making sure all bases are covered to equip for the real-world tasks of corporate taxation.

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Video Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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The DRD dividends received deduction. Now, this essentially exists to prevent triple taxation. You thought double taxation was bad enough. Well, we've got triple taxation, which in theory is eliminated by this. Don't worry. This is a tax provision that allows C-Corps to exclude a portion of the dividends they receive from other corporations from their taxable income. The purpose here is to reduce the impact of double taxation on corporate income and encourage investment in other corporations. I know it says double, but if we didn't have this, it results in triple. When a C-Corp receives a dividend from another corporation, that dividend is generally considered taxable income, as it would be if you received it. Anyone who receives a dividend, it's taxable income. I mean, even if you're a not-for-profit organization, a tax-exempt org, you get that. It's considered taxable, but then because of the organization you are, you don't pay taxes on it. But overall, dividends are taxable income. However, the DRD allows the receiving corporation to exclude a portion of that dividend from its taxable income, effectively reducing the amount of double taxation, which is great. It's wonderful to see. We're going to have some items to memorize, some thresholds to memorize. This is super important for the exam, so make sure you know it. Here we've got our dividend received deduction rates. Memorize these. No thoughts about it. Memorize these 100%. Have these down. Surprisingly, also, it does come up on the financial exam. Hopefully, they remove that because it's a little ridiculous that you have to know something like this for financial, but definitely memorize this. If you own between 0%, not really 0%, because then you don't own anything, but 0.000001, something like that percent, there's 20% of a company, whether you're a

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