DEFINITION of 'Dividend Exclusion'

A rule that allows corporations to subtract dividends received from income for tax purposes. Dividend exclusion is permitted for domestic corporations in the United States and allows for the exclusion of a percentage of dividend income received from other domestic corporations under income tax provisions.

BREAKING DOWN 'Dividend Exclusion'

Prior to the Tax Reform Act of 1986, individuals were also permitted to exclude a certain amount of dividends received from their taxable income. However, effective the following tax year (1987), this allowance was no longer permitted and individuals have since been taxed accordingly for dividend income received.

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