After several years of profitable operations, Javell, the sole
shareholder of JBD Inc., a C corporation, sold 17 percent of her
JBD stock to ZNO Inc., a C corporation in a similar industry.
During the current year JBD reports $1,640,000 of after-tax income.
JBD distributes all of its after-tax earnings to its two
shareholders in proportion to their shareholdings. Assume ZNO’s
marginal tax rate is 25 percent.
How much tax will ZNO pay on the dividend it receives from JBD?
What is ZNO’s overall tax rate on its dividend income?
[Hint: See IRC §243(a).] (Round the "overall tax
rate" to 1 decimal place.)
ZNO’s tax on dividend |
$34850 |
ZNO’s overall tax rate on dividend |
12.5% |
Description |
||
(1) JBD’s after-tax income |
$1,640,000 |
|
(2) Dividend paid to ZNO |
278800 |
17% × (1) |
(3) Dividends received deduction |
$139400 |
(2) × 50% |
(4) ZNO’s taxable dividend |
139400 |
(2) – (3) |
(5) ZNO’s marginal tax rate |
25% |
|
(6) ZNO’s tax |
$34850 |
(4) x (5) |
ZNO’s overall tax rate |
12.5% |
(6)/(2) |
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