Is it mandated that s-corp profits be taken as distributions or can they remain in the s-corp account?

UPDATED: Sep 30, 2022

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Is it mandated that s-corp profits be taken as distributions or can they remain in the s-corp account?

Hypothetical questions My s-corp takes in 100,000 gross dollars per year and pays one salary at 50,000. Can the remaining funds roll over to the next year? Can the roll over funds be used to purchase real estate or make stock market investments?

Thank you

Asked on December 5, 2016 under Business Law, North Carolina


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 5 years ago | Contributor

You don't have to take them out as distributions and can use them for purchases or investments. You will pay taxes on them, however: whatever *profit* an S-corp. makes is taxable as part of your income, regardless of what you do physically with the money. That said, if you invest it, those investments may count as business expenses (like buying real estate) and so operate as deductions to lower your profit and hence taxes. Speak with a CPA or other knowledgeable tax preparer before doing anything, to understand what is and is not a deduction, but generally, a business investing money or buying assets is a business expense and hence deduction. If you just leave the money in the S-corp. account, however, you will pay the same taxes on it as if you'd moved it to your own bank account via taking a distribution.

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