What Is Personal Holding Income?

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(a) General ruleFor purposes of this subtitle, the term “personal holding company income” means the portion of the adjusted ordinary gross income which consists of: (1) Dividends, etc.

Dividends, interest, royalties (other than mineral, oil, or gas royalties or copyright royalties), and annuities.

What are personal holding companies?

A personal holding company (PHC) is a C corporation in which more than 50% of the value of its outstanding stock is owned (directly or indirectly) by five or fewer individuals and which receives at least 60% of its adjusted ordinary gross income from passive sources. A PHC must pay a corporate tax equal to 20%.

Is rental income personal holding company income?

Rental income will not be considered PHC income if the rental income totals at least 50% of adjusted ordinary gross income and the sum of dividends paid, dividends considered paid, and consent dividends is at least equal to the amount by which other personal holding company income exceeds 10% of ordinary gross income.

Can an LLC be a personal holding company?

LLCs as Holding Companies

When an LLC is set up to be a holding company, it conducts no operations other than owning the other company and its assets. The company where operations actually occur, and where most of the employees and liabilities are, is called an “operating company.”

Do Holding Companies pay taxes?

On the other hand, if you have a holding company of your own that owns your shares in the corporation, dividends paid to your company will for the most part be tax-free. To avoid the so-called “Part Four” tax, your corporation and company have to be “connected,” according to tax law.