Welcome Guest. Register Now!  

LinkBack Thread Tools Search this Thread Display Modes
  #1 (permalink)  
Old 11-20-2009, 12:12 PM
Junior Member
Join Date: Nov 2009
Posts: 1
retained earnings

We are a small C corp with sales less then 4 million I have 2 questions

1. Are we able to use the "CASH" method for accounting for our corporate taxes

2. It has been advised to us to begin to set up a retained earnings account and deposit 5% of sales to this account for emergencys and small oppurtuities for future expansion.

Will we have to pay corporate taxes on this account or does the IRS allow us to keep a certain amount in the bank

We have not paid any dividends to date


Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
  #2 (permalink)  
Old 11-21-2009, 02:34 PM
TaxGuru's Avatar
Tax Guru
Join Date: Jan 2007
Location: New Jersey, USA
Posts: 2,401
Blog Entries: 3
To answer your first question, "you can elect to have the cash method of accounting assuming your are not in the retail business." As a matter of fact, most small businesses, with annual sales of less than $5 million, generally are free to choose which accounting method to adopt.

But if your business maintains an inventory of items that you will sell to the public, the IRS requires that you use the accrual method of accounting. (Inventory includes any merchandise intended for sale to customers.)

To answer your second question, the IRS would generally not have a problem of small corporations maintaining retained earnings. As such, Retained Earnings are "undistributed profits" that have already been taxed by your corporation at the applicable corporate tax rate, but have not been distributed to shareholders in the form of Dividends. Usually, the IRS would not have any problems with corporations maintaining Retained Earnings assuming there is a valid business purpose for maintaining these reserves.

Actually, it is fairly prudent to maintain some profits with your company as buffer for the unexpected expenses and an economic downturn.

Find a CPA near you!

Ask TaxGuru Please refer to the legal disclaimer.

Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote

Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

vB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off

Similar Threads
Thread Thread Starter Forum Replies Last Post
Retained Earnings tellme S-Corporation 0 07-15-2009 09:18 AM
What is the tax treatment for distributions for prior retained earnings? Leah S-Corporation 0 05-28-2008 04:20 PM
What are Variable Annuities? Are Earnings from these taxable? Allard Investment Strategy 0 02-28-2008 01:10 AM
What is the significance of having Retained Earnings in a Corporation? bookkeeping C-Corporation 1 02-18-2007 08:07 PM

Follow us on Facebook Follow us on Twitter Google Buzz Rss Feeds

» Categories
 » Income
 » IRA/Sep
 » Medical
 » Payroll
Forum for CPAs
Financial Planning

» Recent Tax Q&A
No Threads to Display.