[Anonymous]

For some reason I can’t grasp these rules… Please help me understand.

DRD is the lesser of xx% of qualified dividend income or xx% of taxable income.

If DRD creates or adds to an NOL, the income is not a limiting factor.

Essentially, there’s no issue unless taxable income < dividends. That won’t happen unless you have an NOL before dividend income, right? So, ultimately, there’s no exception unless NOL > Dividend income*(1-DRD%)?

I know I’m overthinking it and that’s probably confusing.

[Mika]

me neither

this rule wont stick to my brain

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[s2sylvir]

I'm not sure if I'm understanding correctly, but if I am, you're wondering when there's a case that dividend income would be more than taxable income?

Well, if a corporation has had income in the past (aka no NOL), and the only activity they have is $10,000 of Dividends Received from another corporation and paying business taxes/license renewal for $2,000, then their taxable income is $8,000. In this situation, the lesser is taxable income.

There are cases when that happens, for example, during Hurricane Sandy. We had a company who's building got destroyed and it took a long time to rebuild. They pretty much went a year without any income or expenses, but they still had to pay administrative items.

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[Mika]

s2sylir, i thought OP is asking the ‘rare limitation rule' of DRD

which we do not do multiple the 80%, 70% DRD with the dividend, instead we multiple it using taxable imcome

REG - 80 (02/13/2015) Roger + Ninja Flash Card + Ninja MCQ + Becker's Note
FAR - 84 (05/29/2015) Roger + Ninja MCQ + Some Wiley book questions
BEC - 77 (08/27/2015) Roger + Ninja MCQ + Half Wiley book questions
AUD - 87 (08/28/2015) Roger + Ninja MCQ + Half Wiley book questions

[s2sylvir]

@mika

I was answering this part “Essentially, there's no issue unless taxable income < dividends. That won't happen unless you have an NOL before dividend income, right?”

No, taxable income can be less than dividends even without an NOL

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[Anonymous]

@s2sylvir – in your example, there's an operating loss of $2k before dividend income.

I was not explaining myself well at all. Sorry, I was pretty wired. I think it's better to look at it as if the standard DRD<TI<DI then you'll have the exception?

Example:

You own 40% of qualified company A. Dividend Income = $100. Taxable income = $90.

The standard DRD would be $80. Since Taxable Income is between the standard DRD and DI, you're limited to $72.

As long as TI falls outside of that range, you don't have to worry about the taxable income limitation. Is that correct?

[s2sylvir]

Sorry, I just can't grasp that thought process >.<

It's as you said, the DRD is lesser of: (Taxable Income or Dividend Income) x Applicable %age

However, if (DI x Applicable %age) results in a loss, then just stop there and use that amount. Forget about comparing TI with DI taxable income.

Isn't that simpler or no? @____@

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[Anonymous]

When you say it like that it sounds so easy…. Or maybe it's because I've been overthinking this for so long? Who knows? I think CPA Excel just made it so incredibly wordy that I couldn't grasp what was going on. In the end, we're saying the same thing. I just remember it better with less words. Thanks for helping to clear it up for me!

[s2sylvir]

I don't think there's anything wrong with overthinking. If anything, I think Becker tries to simplify things a little too much… I am definitely glad I could help! You're gonna pass!! Go go go 😀

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[Author]

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