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Rakhi Vasavada
Rakhi Vasavada, Financial and Legal Consultant
Category: Finance
Satisfied Customers: 2557
Experience:  Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
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I have an s corporation that am already showing by june 1st

Customer Question

I have an s corporation that am already showing by june 1st over 150k in profit and will in all likelihood see over 300k in profit. I have a construction business and would prefer to roll over some profit to the following year pretax for jobs rather than being recognized as earned income this year.Besides the various tax strategies as purchasing equipment, medical plans, sep, ira etc. Is it possible to set up separate c corporations to subcontract to, pay the lowdr corporate tax rate for each for this year in order to use the profit pretax for job costs?The other question i had; can an s corporation biy stocks and invest like an individual can and deduct this from revenue? In effect using pretax profit to invest?
Submitted: 6 months ago.
Category: Finance
Expert:  PDtax replied 6 months ago.
Hi from Just Answer. I'mCustomer I can assist, but your plan requires significant tax planning time with a tax pro. But I can introduce the strategy. The problem with multiple corporations that you control is that you are creating a controlled group of corporations. You only get to use one set of tax brackets, so there will only be one $50,000 15% bracket, etc. Additionally, income paid in (through a management fee or other contractual arrangement) must have a business purpose. It works, but you will have to be committed to the plan for some time. The income that you drop in the C corp will be taxed, then it has to come out to you currently, through a loan, most likely. After you reach $100,000 in these loans, they must become interest bearing. When you close out the c corp, you will pay tax again on liquidation. Ordinary income rates on the forgiven loan, capital gain for other assets. The strategy works best if you want to transfer a working enterprise to a child or heir, or if you can keep it long enough to set up estate valuation (a step up in basis for the business, thus an escape of the gain on appreciation. You might consider deferred compensation as an option, or even a trust. I can tell you we do these for our high income clients, but there are some special regs about self-dealing that limit the benefit. Thanks for asking at Just Answer. Positive feedback is appreciated. I'mCustomer
Expert:  PDtax replied 6 months ago.
I just saw you had a part 2 to your question. I will ask that you post that to another thread, and ask for me, and I will be glad to assist.Customer
Customer: replied 6 months ago.
Could the s corporation subcontract to the new c corporation for whatever use (let's say materials and consulting work) and roll the the profit into the following year, being taxed at the lower corp rate rather than my higher individual rate? And when I want to realize the profit being held over from the c corporation, subcontract some service back to my s corporation...that way I can deduct this from the c corporation and realize the profit on my s corp just with the individual tax rate in my s corporation and avoid self employment taxes etc.Basically I'm using this rolled over profit as a loan of sorts as the profit will be used on the following year projects. Rather than being taxed and then trying to use the after tax dollars for projects starting in a few months...I want to pay the low corp tax this year to use the funds on those jobs. Possible under this idea?
Expert:  PDtax replied 6 months ago.
You won't be able to 'roll the profit' into the next year, as it would require mixing cash and accrual basis, which won't work with a controlled group and one owner. Otherwise, this will. Please rate my assistance when you accept. I'mCustomer