Subchapter S tax help

[VetteLT193]

I started a company late last year, Subchapter S corp.

Bottom line is I wound up making a few thousand, and as of 12/31 I squared the business account up so the balance was 100% profit. The balance is also needed for business expenses, i.e. I need the cash in the account in order do more business so it's just my working capital.

Do I have to take that money as earnings, or is there a way to just keep it in the corp as working capital, and pay the taxes on earnings in future years when I actually earn something? So far I have had no tangible earnings so I'd much rather not have to shell out tax money on it yet.

I have almost no deductions to take, so this is going to be considered profit.

Thanks for any help!

 

[ThruHull]

short answer, The income will pass through on a K-1 to your 2008 personal 1040 and you will be taxed on it there. If you need more help, let me know and I will get you my number. Tosh

 

[Chris]

You can loan it back to the S corp.

You need a good CPA. No business can hope to survive without one. You'll give away alot of money needlessly.

 

[VetteLT193]

short answer, The income will pass through on a K-1 to your 2008 personal 1040 and you will be taxed on it there. If you need more help, let me know and I will get you my number. Tosh

That is what I thought would happen, but wanted to confirm it.

You can loan it back to the S corp.

You need a good CPA. No business can hope to survive without one. You'll give away alot of money needlessly.

My wife is an accountant but hates tax, so I get stuck with it. I haven't done business tax in a long time either... I used to know all the rules but half the crap has changed. A hired CPA would be great but it's freaking impossible to get a company off the ground and afford one. We're busy enough trying to do actual work. Stinking government... and they wonder why the economy is in the toilet.:boxing_smiley:

Am I hosed on the tax now that 2008 is over and done with?

 

[Expensive Date]

You can also bonuse it out of the corp.,pay tax on it and leave it in there.The government does not care what you do with it as long as taxes are paid.But you do need a good accountant

 

[VetteLT193]

You can also bonuse it out of the corp.,pay tax on it and leave it in there.The government does not care what you do with it as long as taxes are paid.But you do need a good accountant

That's what I'm thinking I have to do. It just sucks they don't give a buffer for a little bit of cash so you can actually do your business. Even though it's only a few thousand it will add to my salary so that last few thousand will be taxed like crazy.

 

[Chris]

You could go C corp and pay the tax on it twice!

 

[Andrew]

An S Corp can not hold any money and the Net Income will pass through on the K-1 to your 1040 whether you leave it in the company or take it out. Unfortunately it's a little late for 2008 tax planning but the good news is the income will not be subject to payroll taxes because it is considered dividend income.

You could also create a liability account "Due to Shareholder" on your 2008 books, move the money to that account and avoid paying income tax on the money for 2008. You will eventually have to draw the money and pay income tax on it and could potentially be in a higher tax bracket (or income tax rates could just be generally higher) when you do.

I know getting a company off the ground is tough but like others have posted above a good account can easily pay for themselves and help you grow your business.

 

[ChiefApache]

An S Corp can not hold any money and the Net Income will pass through on the K-1 to your 1040 whether you leave it in the company or take it out. Unfortunately it's a little late for 2008 tax planning but the good news is the income will not be subject to payroll taxes because it is considered dividend income.

You could also create a liability account "Due to Shareholder" on your 2008 books, move the money to that account and avoid paying income tax on the money for 2008. You will eventually have to draw the money and pay income tax on it and could potentially be in a higher tax bracket (or income tax rates could just be generally higher) when you do.

I know getting a company off the ground is tough but like others have posted above a good account can easily pay for themselves and help you grow your business.

Listen to them regarding the accountant. We just switched accountants and what a difference already. Our new accountant is advising us to do this, do that....our other accountant we saw 2x a year and he charged us a lot of money to do our taxes.....I don't mind paying if he's workig for our best interest and not just charging high prices because he's a CPA.

We are a LLC and will be changing to a S Corp shortly.

 

[Offshoredrillin]

find a good accountant. leave it in the company and find the writeoffs to substantiate it. there is nothing wrong with carrying some cash over in a company checking account to pay upcoming bills. You are expected to not make money your first year in business so dont. the only time you will have to pay tax on it is if you pay yourself (payroll tax) or disperse it (dispersement tax/higher amount). if you put the money up to get the business started, you can pay yourself back as a long term liability as debt to stockholder. depending on where you are screen your accountant vigorously, make sure he/she is up to date on new tax laws...S and C corps will pass through, but need operating capital as well.