Question on S Corp

[JG EA]

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?

[Unregistered]

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

[veritas]

Creates bookkeeping headaches too.

[JG EA]

Thanks.

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 EA]

What sort

Creates bookkeeping headaches too.

of bookkeeping headaches?

[veritas]

of bookkeeping headaches?

If you buy securities then you must track basis, dividends qualifying-non, reinvesting dividends and so on.

[Unregistered]

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

[JG EA]

Thanks to both of you.

I appreciate the information and advice.
JG

[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.

[Bees Knees]

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.