What is the dividends received deduction?
The dividends received deduction (DRD) is a tax deduction that C corporations can receive on the dividends distributed to them by other companies whose stock they have ownership rights to. As a C corporations’ interest in a company that is distributing dividends increases above certain percentage thresholds, the amount of the dividends received deduction that the corporation can take will also increase.
The allowable deduction is based on the percentage ownership of the company that the corporation owns:
The example below illustrates how an ownership of 40% translates into a percentage deduction of 65%:
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