Marathon Inc. (a C corporation) reported $1,600,000 of taxable income in the cur

Question

Marathon Inc. (a C corporation) reported $1,600,000 of taxable income in the current year. During the year, it distributed $160,000 as dividends to its shareholders as follows: (Leave no answer blank. Enter zero if applicable.)

$8,000 to Guy, a 5 percent individual shareholder.

$24,000 to Little Rock Corp., a 15 percent shareholder (C corporation).

$128,000 to other shareholders.

1.How much of the dividend payment did Marathon deduct in determining its taxable income? ANSWER: 0 - I don't need help with this one.

2.Assuming Guy’s marginal ordinary tax rate is 37 percent, how much tax will he pay on the $8,000 dividend he received from Marathon Inc. (including the net investment income tax)?

3. What amount of tax will Little Rock Corp. pay on the $24,000 dividend it received from Marathon Inc. (50 percent dividends received deduction)?
(Round your final answers to the nearest whole dollar amounts.)

Please post answer clearly and with steps, so that I can learn how to do it properly. Thanks.

Explanation / Answer

Part A

$0. A corporation is not allowed to deduct dividend distributions it makes to its shareholders.

Part B

$1200 (8000*15%) Guy would pay tax on the dividend at a 15% tax rate.

Part C

$4440 tax. $24,000 dividend – $12000 dividends received deduction = $12000 taxable portion of dividend × 37% marginal tax rate = 4440

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