Marathon Inc. (a C corporation) reported $1,000,000 of taxable income in the cur
ID: 2417430 • Letter: M
Question
Marathon Inc. (a C corporation) reported $1,000,000 of taxable income in the current year. During the year, it distributed $100,000 as dividends to its shareholders as follows:
• $5,000 to Guy, a 5 percent individual shareholder.
• $15,000 to Little Rock Corp. a 15 percent shareholder (C corporation).
• $80,000 to other shareholders.
How much of the dividend payment did Marathon deduct in determining its taxable income?
Assuming Guy’s marginal ordinary tax rate is 35 percent, how much tax will he pay on the $5,000 dividend he received from Marathon Inc.? Ignore the Medicare Contribution Tax.
Assuming Little Rock Corp.’s marginal tax rate is 34 percent, what amount of tax will it pay on the $15,000 dividend it received from Marathon Inc. (70 percent dividends received deduction)?
Explanation / Answer
a) Since the dividend is declared or paid after deduction of income or corporate tax, hence there would be no deduction of dividend payment shall be allowed for calculation of tax.
b) G[' share of Dividend Income = $5,000
Tax rate = 15%
Tax on Dividend = $5,000*15% = $750.
c) L's Dividend Income = $15,000
Deduction allowed from Dividend Income = $15000*70% = $10,500
Net Taxable Dividend = $15000-$10500 = $4,500*34% = $1,530
Tax on dividend = $4,500*34%