If you own shares in a company understand that if you collect any dividend payments from that company, you will be responsible for the tax consequences. However, if the holding company you own also owns your shares in the corporation, dividends paid to your entity will largely be tax-free.
United States tax law allows a holding company to receive a deduction for dividends received from its corporation and to defer a percentage of the taxable income.
What Is a Holding Company?
The traditional holding company has no operations, activities, or direct business; however, its specific purposes are to owns shares in another company. The assets can consist of shares of stocks that can be backed by anything that has value. If you are planning on investing in companies through stocks, securities, or bonds, you will encounter the term “holding company.” Many of the most successful companies in the world are holding companies.
Ways To Use A Holding Company
Assets in a retirement fund can be utilized as a type of pension if required if they are in a holding company
Company profits can be converted to the holding company as dividends
Tax-free dividends can be distributed to the holding company as the beneficiary
Holding company shares can be placed in a trust
The holding company can be held by single or multiple people creating the leverage to divide dividend payments and taxes.
Subsidiary vs. Holding Company
A company can set up a subsidiary, and if the subsidiary doesn’t succeed, the parent company is not liable for the debt as the two companies are separate entities who pay their own taxes on their income. A subsidiary company can make its own choices and manage itself, without approval from the parent company which can still maintain its control by just being the sole shareholder.
To learn more about how you can benefit from revolving your tax plan around your holding company and subsidiary company, schedule your free consultation today at JeffreyLevine.Solutions today.