How & When to Distribute Cash From Your S-Corp
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- Опубліковано 10 лип 2024
- It's pretty easy to let extra cash build up inside your S-Corporation if you don't have a framework for managing & distributing it.
Don't let that be you. Extra cash loses purchasing power by the day right now. Here's the breakdown on when & how to distribute cash from your business.
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Thank you, very straight forward and informative.
Very informative video. Thank you.
Thank you
Same goes for LLCs and sole proprietorships, by the way. If you have cash building up in business accounts you’re paying tax on the earnings whether it remains there or is distributed to your personal bank accounts.
If you leave money in the account. Is this retained earnings? If you take the money out in the futures how to you show that on the balance sheet so it doesn’t appear you are getting additional distributions.
THIS is the answer I was seeking as well. Especially since that money has been sitting in my business since before I started filing as S-corp.
Yes, leaving the money in the account is considered retained earnings. Taking the money out in the future will show up as a distribution. The key point is that you're not taxed on the distributions. You're taxed on the earnings on a year to year basis.
Let's say in 2023 your S-Corp had $100,000 in earnings. You kept everything in the company account. Because the corporate tax return shows $100k in earnings, that's the amount that'll be passed through to owners on form K-1. And you'll get to pay tax on that money on your personal return.
If in 2024 you take the $100,000 out of the company account, it'll show up as a distribution on your financial statements. But it won't incur any additional tax. You'll only pay tax on the earnings from 2024 - not those from 2023.
Thank you! The extra money ($100k in your example) is still taxed, but only as income tax, right? Not taxed by social security, medicare etc?
Correct
What if I am late on filing my SCorp, and I took draws from SCorp, but didnt record at that year
Those sound like to unrelated issues. One is that you're late filing the S-corp return. This will trigger a penalty once you do file the return. The other issue is if you took draws from the business during the year. Your books should show the distributions throughout the year.
Do you recommend making investments as a business or taking the money out and as a person? Thank you.
Depends on many factors. Might make sense to keep the money in the business, or take it out prior to making investments. Your entity structure, business vision, and personal finances all matter.
Investments are great. Need cash for something in about 3 months? Invest spare cash in 13 week t-bills. Much better than the nothing you get in business bank accounts.