Simple S-Corp Question

I have a small one person S-Corp. Up to this year, it has been pretty much subsistence. I pay myself a low salary, enough to get by on, and that pretty much takes care of the "profits." There have been no distributions.

This year I did better than that. I need new computer equipment. I would like to take the same small salary, and leave the extra funds in the company to buy the equipment without it being taxed. Can I do that?

I have spent 3+ hours googling for the answer, but can find nothing but complex discussions about the various categories of retained earnings and zero answers to that simple question.

Thank you in advance.

Mike

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Reply to
Mikef10
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With a C-corporation you could leave some money in the corporation, and pay tax on it at corporate rates. With an S-corporation, you are personally taxed on all the corporation's income, whether it is left in the company or not.

Reply to
Stuart A. Bronstein

Right. The S-corp is a "pass-through" entity.

You can leave the cash in the corporate bank account and use it whenever you want to purchase equipment. At that time, you will have a deductible expense (depreciation), which more or less offsets the income on which you paid tax.

If you buy the equipment this year and elect the (expanded) Sec. 179 deduction to write it all off this year, you will essentially pay no tax on the money (the deduction will either pass through to you, or remain with the corporation for future use). There is also bonus depreciation currently in effect for writing off 50% in the first year.

-Mark Bole

Reply to
Mark Bole

If you want to avoid the tax you need to prepay the expense during the 2010 tax year. If you don't spend the money and you have positive earnings you will be taxed on it.

Reply to
W

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