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I'd like to ask a tax attorney a question about my business

Accountant's Assistant: The Accountant will know how to help. Please tell me more, so we can help you best.

I own an S-corp and I sell a financial wellness benefits program. A certain amount of the monthly fee will be set aside in a brokerage account in order to pay the vendors that give our clients the free benefits we offer. A small portion of that brokerage account will be invested and the rest will be "cash" that is kept to cover vendor expenses in order to pay for the client's free benefits. Would this be considered "Retained Earnings" and would I be taxed on this?

Accountant's Assistant: Is there anything else the Accountant should be aware of?

No. I think that's it.

Submitted: 6 months ago.Category: Tax
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Answered in 8 minutes by:
12/22/2017
Tax Professional: Barbara, Enrolled Agent replied 6 months ago
Barbara
Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 6,168
Experience: 20+ years of experience in tax preparation; 30+ years of experience as a real estate/corporate paralegal.
Verified

Welcome to Just Answer. My name is ***** ***** I will be happy to assist you.

I am NOT a tax attorney, but I am an IRS Enrolled Agent. The following IRS link contains information about the qualifications of an Enrolled Agent:

https://www.irs.gov/tax-professionals/enrolled-agents/enrolled-agent-information

Please let me know if you would like me to assist you.

Thank you.

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Customer reply replied 6 months ago
please.
Tax Professional: Barbara, Enrolled Agent replied 6 months ago

Unfortunately, you will be taxed on the money.

S corps can distribute profits to their shareholders, keep them as retained earnings or do a little of both. An S corp doesn't pay taxes. The shareholders pay all the taxes on the company's profit, no matter what the company does with that profit. If the company then distributes profits to the shareholders, the distribution isn't taxable income to the shareholders because they are already paying income taxes on the money. But if it chooses to keep profit as retained earnings, the shareholders still pay income taxes on the money.

The following link contains additional information you will find helpful:

http://smallbusiness.chron.com/s-corporation-pay-taxes-retained-earnings-67061.html

I wish I had better news for you.

Thank you and best regards,

Barb

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Customer reply replied 6 months ago
Hi Barb. I'm a little confused. I'm trying to figure out if I'll be taxed on retained earnings if I keep it in a brokerage account under my business name. I have to keep a certain percentage of the money that comes into the business to cover the cost of providing the clients with the free benefits that I give away with their membership. For example, money will be set aside in a brokerage account to cover the cost of credit repair if the client wants to claim their "free credit repair" benefit. I have to pay the credit repair company from the money in the brokerage account to cover the credit repair services. Will I be taxed on the money that is saved in that brokerage account? Thanks!
Customer reply replied 6 months ago
Oh. I'm sorry. I just saw the first line of your response. I missed it the first time I read it.
Tax Professional: Barbara, Enrolled Agent replied 6 months ago

Not a problem.

I understand what you're saying, but unfortunately, you will be taxed on the money whether you receive it yourself or not.

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