Federal income taxation

TO: Board of Directors, XYZ Company
FROM: Tax and Finance Controller
DATE: 16th July, 2018.
SUBJECT: Significance of the Deductions
Dividend received deduction is a special deduction that is allowable for C corporations and not S corporations. This deduction is important as it helps corporations to avoid triple taxation. Since the company’s income is taxed when paying the dividend, when receiving the dividend, and when the shareholder is paid the dividend. The dividend received deduction is helpful to a company receiving a dividend from another company as it reduces the income tax. The deduction depends on the percentage the firm owns in the company from which it’s receiving dividends. If the company has more than 80% stake in another company, it will get 100% of the dividend received deduction. If the company owns between 20% and 80% of the other company it will 80% deduction of the dividend earned. The general rule provides that dividend received deduction should be 70% of the amount of dividend received.
Charitable contribution deductions are itemized deductions to those taxpayers that donate cash or property to charity. The deductions are important as they promote charity giving by allowing the taxpayer to deduct the contributions that qualify for deduction and listing them on schedule A of form 1040. Taxpayers can deduct their charitable contributions if the receiving organization are qualified under the section 170 (c) of the Internal revenue code.
If the tax deduction exceeds the taxable income, the firm will have a net operating loss.

The net operating loss is therefore carried back or forward to be deducted against the gross income in those years. The net operating loss deduction is important since it offers tax relief to the company in those years. When the company makes losses, it is relieved from tax by these deductions.