Investing money that's sitting in a business account?

transistor

transistor

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Sep 30, 2007
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Probably a dumb question... I started an S-corp and I only pay myself about 1/6 of what I make. The rest just sits in the business bank account. The thought was that I could just spread my payments out over more years to reduce my tax rate, should this online money making thing not last forever. Now that I think about it, I don't know if that's a great idea, time value of money and all...

Anyway, if I wanted to have the money that's just sitting in the bank work for me, could I invest it, even if investing isn't really within the scope of my business? Would doing so have any benefits relative to doing it with my personal money?
 


The amount you distribute from your S corp has nothing to do with the effective tax rate. All earnings of the S corp pass through to you, and you must pay tax on them, whether you distribute the cash back to yourself or not. If your S corp makes X this year, then you will get a K-1 assessing you the same X in (taxable) earnings personally.. whether you take all or none of the earnings out of the S corp.

A C corp is taxed as an entity and would more conform to your strategy. However, you face double taxation in that the C corp pays corporte taxes and then distributions to you personally are taxed as dividends.
 
Um I'm pretty sure with an S-Corp the earnings are taxed at personal level no matter the distributions.

IE You own 100% of the S-Corp and it makes 300k. It doesn't matter if you do a 300k distribution to yourself or a 50k one at the end of the year you must pay taxes on your share of income earned by the S-Corp not the distribution you received, in this example that would be 300k.

What you are explaining would only be possible with a C-Corp. There are very specific rules designed to prevent "spreading out your income to reduce your tax rates" with two exceptions, farmers and fishermen. Everyone else, if you have a boom year the system is very much designed to make sure you pay in that high tax bracket.

Edit : Looks like excluviewrites beat me to it. Yes we are sure.
 
Fuuuuuuuuck, I did not know that...

That's going to make it hard to keep track of the money in my account that's already been taxed from previous years. Well, maybe not if I did proper book keeping...
 
Hello friend,

Maybe it best for you to talk with advisor of financials and accountant.

Usual it best for invest money back into business to help grow but if have too much cash free that business no could use all then it good for look at alternative to invest.

Also I no know about tax laws America but if it profit money I think still have to pay tax on it whether leave in bank or use to buy self things nice.

Good luck bro
 
exclusivewrites said:
The amount you distribute from your S corp has nothing to do with the effective tax rate. All earnings of the S corp pass through to you, and you must pay tax on them, whether you distribute the cash back to yourself or not. If your S corp makes X this year, then you will get a K-1 assessing you the same X in (taxable) earnings personally.. whether you take all or none of the earnings out of the S corp.

A C corp is taxed as an entity and would more conform to your strategy. However, you face double taxation in that the C corp pays corporte taxes and then distributions to you personally are taxed as dividends.
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this is correct. I have a LLC that files as a partnership, in this case all income is taxed at the personal level after the llc income is passed through to your 1040
 
Pre-pay for as much shit as you can between now and end of the year. You should really check with an accountant. If you haven't been paying quarterly, then you might face some serious penalties. To avoid that, you gotta file a large Q4 estimated fairly quick.
 
exclusivewrites said:
Pre-pay for as much shit as you can between now and end of the year. You should really check with an accountant. If you haven't been paying quarterly, then you might face some serious penalties. To avoid that, you gotta file a large Q4 estimated fairly quick.
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I'll be seeing my accountant in a week. I've been away at school and haven't talked to him since I set up the s-corp. FML
 
You can still deduct business expenses from an S-corp, that I am 100% sure of. If you make investments that are for your business and deduct them as expenses and have legitimate proof of all of the transactions then you can reduce your liability at the end of your fiscal year. If you made $300k and spent $250k on expenses(traffic, affiliates, etc) leaving $50k in net profit, at the end you will owe around $15k to uncle sam.

Do not fuck around with trying to do corporate taxes by yourself if you don't know what you're doing and take these considerations here with a grain of salt. Get a qualified cpa and a consultation about what your options are.
 
If I leave money in the account from the previous year, it will already have taxes taken from it. So, if I use that money for expenses in the current year, it seems like I wouldn't be getting my whole deduction. Unless proper accounting takes that into account, which I'm sure it does. It just seems like an extra thing I have to remember. Fucking taxes, man...
 
sumitdhawan09 said:
Hello friend,

Maybe it best for you to talk with advisor of financials and accountant.

Usual it best for invest money back into business to help grow but if have too much cash free that business no could use all then it good for look at alternative to invest.

Also I no know about tax laws America but if it profit money I think still have to pay tax on it whether leave in bank or use to buy self things nice.

Good luck bro
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Maybe you invite OP to live with you and then his first 90K or so is exempt from taxes. He split savings with you. Maybe start WF high-rise frat house like Mukesh Ambani to take in many Americans not liking taxes or FTC.
 
transistor said:
If I leave money in the account from the previous year, it will already have taxes taken from it. So, if I use that money for expenses in the current year, it seems like I wouldn't be getting my whole deduction. Unless proper accounting takes that into account, which I'm sure it does. It just seems like an extra thing I have to remember. Fucking taxes, man...
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Taxes are depressing thats for sure. In 2008 i paid my first ever high 6 digits in taxes and I couldn't sleep for a week. Then peace of mind came.

Paying taxes feels like robbery but we have no choice.
 
prepay media buys for next year
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There are lots of opportunities here. The whole double taxation thing with C Corps is silly. My C Corps have never paid any tax on anything because they never make a profit by the time they pay expenses, my salary, bonuses, dividends, etc.

The problem, as always, is how to actually get your profits in your hands while paying as little tax as possible ...
 
dsiomtw said:
There are lots of opportunities here. The whole double taxation thing with C Corps is silly. My C Corps have never paid any tax on anything because they never make a profit by the time they pay expenses, my salary, bonuses, dividends, etc.

The problem, as always, is how to actually get your profits in your hands while paying as little tax as possible ...
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Running expenses through the C corp is obviously the best way to extract profits.. however, that can be risky. You're getting hit with fica, etc drawing out salary via a C corp versus S corp or LLC distributions.

If you're zeroing it out anyway, why have a C as opposed to an S? I can see if you're consistently leaving in 50K or so a year, then it makes sense.. pay the lower first tier C corp tax instead of your effective personal rate via the pass-through. Other than that, I don't see why you have a C.
 
Even with an s-corp you have to pay quarterly estimated taxes if you aren't paying yourself everything you make?

What about dividends? Those are supposed to be taxed at a lower rate, right?
 
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