My family owns an S-Corp with seven employees. We have a sharp cash flow cycle due to a reimbursable lag in our industry. Because our ARs during the first of the year take longer than normal to get paid, our cash income drops significantly from Jan-May, and then builds back during the rest of the year. On paper, we are profitable throughout the year. It is purely a cash issue. Because it is an S-Corp, and he will be taxed on retained earnings anyway, my father takes cash out of the company in December, only to personally loan it back to the company Jan-May. Is there a way to keep this cash in the company-perhaps in some sort of special reserve account-without it being classified as retained earnings? Obviously, if this is a possibility, the cash we would use in year 1 to establish that account would be retained earnings, and taxable as such. After that however, if we drew down that account and then rebuilt it to a set level each year, would that cash be considered retained earnings, or some type of operating asset/account of the company? Obviously, if we ever increased the amount to be maintained in that account, the delta of the increase would come from taxable retained earnings, but would the par level amount be taxed as retained earnings if it were carried over from the previous year? Many thanks, Eric
- posted
17 years ago