S-Corp Retained Earnings

[Terry D EA]

Single shareholder S-Corp had gross receipts of 1.3M. Bottom line, 154K passes thru to the shareholder. Any way that any part of this can be kept in retained earnings and not all be taxable this year? Just seems wrong that losses can only be claimed to the extent of basis or income and can be carried forward but profits get hit all at once.

[Randall]

That would be the reason for the S election, not a C.  It will increase his basis.  If he needs to retain the money in the business, he can distribute only enough to cover the tax, 'retaining' the rest.  He's in good shape having profit and not losses.

 

[WITAXLADY]

I do not understand - bottom line is taxed isn't it? Regardless of how much he gets? 

[Terry D EA]

11 hours ago, Randall said:

That would be the reason for the S election, not a C.  It will increase his basis.  If he needs to retain the money in the business, he can distribute only enough to cover the tax, 'retaining' the rest.  He's in good shape having profit and not losses.

 

Yes, you are correct that it will increase his basis and yes it is better to have profits. Also, the bottom line is it is taxed.  I have to admit that I did forget he could distribute enough to pay the tax and not be guilty of comingling of funds.