DEFINITION of 'Taxable Spinoff'

A divestiture of a subsidiary or division by a publicly traded company, which will be subject to capital gains taxation. The subsidiary will become completely independent from the parent corporation, operating entirely on its own. To qualify as a taxable transaction, the parent corporation must divest through direct sale of the division, or the assets it contains. The profits made from the sale will be taxed as capital gains.

BREAKING DOWN 'Taxable Spinoff'

A taxable spinoff will bring in liquid assets to the company, usually in the form of cash. The downside of this transaction comes from the decrease in income from the capital gains tax. If a parent company wishes to avoid a taxation, they may consider a tax-free spin off. By distributing new shares for the division or prorating new stock to current owners, the company will be able to avoid any capital gains from divestiture.

  1. Divestment

    Divestment is the process of selling an asset.
  2. Spinoff

    A spinoff is the creation of an independent company through the ...
  3. Taxable Gain

    A profit on the sale of an asset that is subject to taxation. ...
  4. Minority IPO

    An initial public offering in which a parent company spins off ...
  5. Wholly Owned Subsidiary

    A company whose common stock is 100% owned by another company, ...
  6. Subsidiary

    A subsidiary is an independent company that is more than 50% ...
Related Articles
  1. Investing

    Comparing Spin-offs, Split-Offs and Carve-Outs

    Spin-offs, split-offs and carve-outs are three methods a company can use to divest certain assets, a division or a subsidiary. Here's how they differ.
  2. Taxes

    What You Need To Know About Capital Gains And Taxes

    Find out how your profits are taxed and what to consider when making investment decisions.
  3. Investing

    How Stock Investors Can Profit Big From Spinoffs

    Spinning Rich Profits: Spinoffs as a group have posted total returns of nearly 300% over 10 years
  4. Investing

    Cashing In on Corporate Restructuring

    Companies use M&As and spinoffs to boost profits. Learn how you can do the same.
  5. Retirement

    The Booby-trapped World of Parental College Loans

    Private parent loans can help families pay for college. But the repayment timeline associated with the loans can hurt parents’ retirement savings.
  6. Investing

    5 Reasons Why Spinoff Companies Can Be a Buy for Investors (ABBV, ABT)

    Learn how investors can profit from investing in spinoff companies, and discover two ETFs that offer exposure to a basket of spinoff stocks.
  7. Financial Advisor

    New Parents Need a Financial Planning Checklist

    There are many areas of personal finance to consider throughout the journey of parenthood. Here are a few to review with your advisor.
  8. Investing

    3 Tax-Reduction Strategies for High-Net-Worth Investors

    Learn about three tax strategies that reduce taxable income and minimize the share of taxes paid on employer-sponsored and individual investment accounts.
  9. Taxes

    5 Tax-Efficient Portfolio Tips for High Income Earners

    High income earners can use these tips to make their portfolio more tax-efficient.
  10. Investing

    Taxation rules for bond investors

    Several factors affect the taxable interest that must be reported. Learn more here.
  1. Why are some spin-offs taxable and some are tax-free?

    Learn how spinoffs of subsidiaries from a parent company are typically done, and what determines whether a spinoff is taxable ... Read Answer >>
  2. What are some common cash-debt strategies that occur during a spinoff?

    Learn how a parent company can utilize cash-debt strategies in a spinoff process to deleverage and gain value by monetizing ... Read Answer >>
  3. What is the difference between a subsidiary and a sister company?

    Discover the differences between subsidiary companies and sister companies, and understand how both are related to parent ... Read Answer >>
  4. How can a divestiture help a company?

    Learn how a divestiture is beneficial to a company by bringing funds and a better focus on core operations, closures of weak ... Read Answer >>
Hot Definitions
  1. Entrepreneur

    An Entrepreneur is an individual who founds and runs a small business and assumes all the risk and reward of the venture. ...
  2. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  3. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
  4. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  5. Income Statement

    A financial statement that measures a company's financial performance over a specific accounting period. Financial performance ...
  6. Leverage Ratio

    A leverage ratio is any one of several financial measurements that look at how much capital comes in the form of debt, or ...
Trading Center