S-Corp, retained earnings and profits

What is the name of your state (only U.S. law)? NC

HI there, I own an S-corporation and have some questions about retained earnings and profits:

• Are retained earnings leftover at the end of the year in my busines checking account taxable? My payroll company said something about having to "spend" all the retained earnings by the end of the year or they will be taxed.

• If I am not using all of the retained earnings/profits (not paying myself more bonus or giving employees more bonus), there will be money left over in the checking account.. is this taxable?

• What is the best way for an S-corp to take its retained earnings and profit and INVEST it? (I'm assuming what I heard was right, that if it is left over in my checking account it is taxable, so where can I put the money to work to earn interest?)

quakers said:

What is the name of your state (only U.S. law)? NC

HI there, I own an S-corporation and have some questions about retained earnings and profits:

• Are retained earnings leftover at the end of the year in my busines checking account taxable? My payroll company said something about having to "spend" all the retained earnings by the end of the year or they will be taxed.

• If I am not using all of the retained earnings/profits (not paying myself more bonus or giving employees more bonus), there will be money left over in the checking account.. is this taxable?

• What is the best way for an S-corp to take its retained earnings and profit and INVEST it? (I'm assuming what I heard was right, that if it is left over in my checking account it is taxable, so where can I put the money to work to earn interest?)

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You are really going to educate yourself about how an S-Corp works. Your tax position has little to do with how much money you have left over in bank at the end of the year.

In an S-Corp the earnings (or loss) will pass through to the earnings every year. The income (loss) is then recognized on the owner's personal returns.

My suggestion to you is to take some of that left over money in your checking account and hire a CPA.

So if there is left over money, it is recognized on my personal returns...right?

So if I made $150,000 in profit, paid myself $50,000, paid my employees $50,000, there is $50,000 left over and THAT will be added to my personal income taxes, so I'll be taxed at the $100,000 tax rate?

Thanks!

Do yourself a favor and hire a tax professional. I'll be blunt:

You have no business preparing an 1120S.

And for the record, retained earnings is NOT necessarily taxable income.

What davew128 says. There are *many* ways to describe things. It is best to see a tax professional to determine, or argue, your tax liability.

Ahhh, so am I to understand that if I come to the Free Advice forum and ask a question about taxes, the only answers I get are "hire a CPA"?

I assume if I ask about a will, you will tell me to hire an estate planner. If I ask about capital gains tax and my investments, I should contact a financial adviser....?

I guess you get what you pay for!

quakers said:

Ahhh, so am I to understand that if I come to the Free Advice forum and ask a question about taxes, the only answers I get are "hire a CPA"?

I assume if I ask about a will, you will tell me to hire an estate planner. If I ask about capital gains tax and my investments, I should contact a financial adviser....?

I guess you get what you pay for!

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Ok, look when you are so in far over your head that you think just because you have money left over in your checking account that you owe taxes, you need more help than we can provide.

When you are so far in over your head that you have no real clue what retained earnings are, that you think it is all taxable, you need more help than we can provide.

Do yourself a favor, take Accounting 101 then come back and look at your post and then you'll see how idiotic and truly green you are.

In the mean time, hire a bookkeeper or a CPA to get you through your immediate needs.

Ahhh, so am I to understand that if I come to the Free Advice forum and ask a question about taxes, the only answers I get are "hire a CPA"?

Click to expand...

Yes. That is the proper "advice".

It is not our job to teach tax law to a person who is unclear on such basic topics. Another piece of advice is to go to the local universities and get a used textbook on taxation of pass-through entities or an advanced accounting text. They will help you understand as well.

Apparently the OP has confused free advice with doing their work for them. There is DYI and there is knowing when you are over your head.