Affiliated Group
What Is an Affiliated Group?
An affiliated group is at least two corporations that are connected through common ownership yet are treated as one for federal income tax purposes. An affiliated group comprises of a parent corporation and at least one subsidiary corporations. The parent corporation must claim something like 80% of its subsidiary's stock and merges the auxiliaries' financial statements with its own.
There might be tax benefits for companies and businesses who become part of an affiliated group.
How an Affiliated Group Works
Affiliated groups are required to file consolidated tax returns. A disadvantage of the affiliated group assignment is that it keeps bigger companies from splitting into more modest ones for the reasons for dispensing a greater amount of their income to bring down tax brackets or keeping away from the alternative least tax.
An advantage is that companies inside the group can utilize their ordinary losses to offset each other's ordinary income. Since losses can be utilized for these reasons, it might frequently be accepted on the off chance that one of the auxiliaries isn't effective in that frame of mind, as it assists with relieving the tax burden of the others in the group.
Illustration of an Affiliated Group
XYZ corporation is the parent company of ABC company and DEF Incorporated. XYZ possesses more than 80% of both ABC and DEF's stock. While XYZ and ABC are flourishing, DEF sells pagers and rotating phones. DEF Incorporated has an enormous loss consistently. XYZ and ABC utilize DEF's losses to offset their own profits and the whole group winds up paying lower taxes thus.
Features
- An affiliated group is at least two corporations that are connected through common ownership yet are treated as one for federal income tax purposes.
- Affiliated groups are required to file consolidated tax returns.
- An advantage is that companies inside the group can utilize their ordinary losses to offset each other's ordinary income.
