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    Question on S Corp

    If an S Corp has quite a bit of money, but doesn't want to distribute it at this point (because it would only carry the business 6 months if business was interrupted for some reason...) what would you think of that business investing the money in stocks and bonds?

    Would this cause any problems that I can't think of right now?

    How much money do you think is safe for a business to be retaining?
    JG

    #2
    No Stocks

    I would never invest an emergency fund in stocks. The owner may want to look at tax exempt bond mutual funds, as these are relatively conservative investments that also produce non-taxable income.

    JoshInNC

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      #3
      Creates bookkeeping headaches too.

      Comment


        #4
        Thanks.

        Originally posted by Unregistered
        I would never invest an emergency fund in stocks. The owner may want to look at tax exempt bond mutual funds, as these are relatively conservative investments that also produce non-taxable income.

        JoshInNC
        But you see no problem in some sort of investment? If SH chooses taxable, it just passes through so no S-Corp problem? Good point about emergency funds. Do you know of any dollar percentage amount that could be too much money on hand?
        JG

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          #5
          What sort

          Originally posted by veritas
          Creates bookkeeping headaches too.
          of bookkeeping headaches?
          JG

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            #6
            Originally posted by JG EA
            of bookkeeping headaches?
            If you buy securities then you must track basis, dividends qualifying-non, reinvesting dividends and so on.

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              #7
              A good rule of thumb is

              to have 3-6 months of money no hand in an "emergency fund". If the business is consistently profitable the 3 month figure is good. If seasonal, maybe look at 6 months. I would rather see the amount passed through to the shareholder and have the shareholder invest it, preferably in retirement vehicles.

              JoshInNC

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                #8
                Thanks to both of you.

                I appreciate the information and advice.
                JG
                JG

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                  #9
                  Just to be clear... there is no problem with an S-corp having investments or investment income. A C-corp can also but has to be, in some cases, concerned about personal holding company status and resulting additional tax.

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                    #10
                    Originally posted by OldJack
                    Just to be clear... there is no problem with an S-corp having investments or investment income. A C-corp can also but has to be, in some cases, concerned about personal holding company status and resulting additional tax.
                    Yes, assuming the S corporation has never been a C corporation. If there is C corp E&P included in the retained earnings, then the S corp could be subject to excess net passive income tax.

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