Hale Corporation reports the following results in the current year: Gross income
ID: 2564904 • Letter: H
Question
Hale Corporation reports the following results in the current year:
Gross income from operations $300,000
Dividends from 15%-owned corporation 100,000
Operating expenses 280,000
Gross income from operations and expenses both pertain to qualified production activities. What is Hale's taxable income?
Assume the same facts as in the previous problem except Hale Corporation’s operating expenses for the
year are $310,000 and that qualified production activities income is zero (or negative). What is Hale’s
taxable income?
Assume the same facts as original problem except that Hale Corporation’s operating expenses for the year are
$331,000. What is Hale’s taxable income?
Explanation / Answer
Part 1 Qualified Production activities Income = $300,000-$280,000 = $20,000
In case of dividend received from corporations that are less than 20% owned,the deduction is limited to the lesser of
70% of dividend received or
70% of taxable income computed without regard to any NOL deduction, any capital loss carry back, the dividends received deduction itself, or the US production activities deduction
Thus in the given case, the Dividend received Deduction is $70,000(i.e. 70% of $100,000)
Computation of Taxable Income
Less :US production activities deduction (9%*$20,000)
(As $20,000<$50,000)
Part 2 If operating expenses are $310,000, then Qualified Production Activities Income (QPAI) will be zero because operating expenses exceeds the gross income so Hale corporation can not claim the US Production Activities Deduction.
Dividend received deduction will be lower of
70% of (300,000+100,000-310,000) = 63,000 or
70% of 100,000 = 70,000
Dividend Received Deduction = 63,000
Computation of Taxable Income
Part 3 If operating expenses are $331,000, then Qualified Production Activities Income (QPAI) will be zero because operating expenses exceeds the gross income so Hale corporation can not claim the US Production Activities Deduction.
Dividend received deduction will be lower of
70% of (300,000+100,000-331,000) = 48,300 or
70% of 100,000 = 70,000
Dividend Received Deduction = 48,300
Computation of Taxable Income
Gross Income ($300,000+$100,000) $400,000 Less: Operating Expenses $280,000 Less: Dividend received deduction $70,000 Taxable income before US production activities deduction $50,000Less :US production activities deduction (9%*$20,000)
(As $20,000<$50,000)
$1,800 Taxable Income $48,200Related Questions
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