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Does it make any sense for a business to invest in stocks or mutual funds?
Posted on 3/4/18 at 5:53 pm
Posted on 3/4/18 at 5:53 pm
Here’s the scenario...
A solo law practice is flush with plenty of cash and could take a large draw. Instead of taking the large draw, could it make sense, and save on taxes, for the business itself to purchase stocks or mutual funds as an investment? The business would continue adding to this investment over time and one day cash out.
For example, let’s assume the draw amounts range from 30-60k, 4 times a year. Thoughts?
A solo law practice is flush with plenty of cash and could take a large draw. Instead of taking the large draw, could it make sense, and save on taxes, for the business itself to purchase stocks or mutual funds as an investment? The business would continue adding to this investment over time and one day cash out.
For example, let’s assume the draw amounts range from 30-60k, 4 times a year. Thoughts?
6
Posted on 3/4/18 at 5:59 pm to Lookin4Par
Sole prop?
This post was edited on 3/4/18 at 6:01 pm
Posted on 3/4/18 at 6:00 pm to TheOcean
S Corp, I think...
This post was edited on 3/4/18 at 6:01 pm
Posted on 3/4/18 at 6:07 pm to Lookin4Par
Don't think you can avoid taxes by using pre tax monies to invest in stocks/mutual funds with an S Corp since it's a flow through entity.
Posted on 3/4/18 at 6:57 pm to TheOcean
Figured as much.
Posted on 3/4/18 at 7:01 pm to Lookin4Par
Individual muni bonds. But don’t plan on cashing out quickly
Posted on 3/5/18 at 4:28 am to Lookin4Par
Businesses do this sort of thing all the time. If it is a solo law practice there may not be any real advantage but I don't see that it hurts either.
Posted on 3/5/18 at 5:49 am to Lookin4Par
The money is still coming into the practice and factors into the profitability of the company which the owner is responsible for paying taxes on. If the purpose is to delay paying taxes on profits I'm pretty sure it doesn't work that way.
Posted on 3/5/18 at 7:08 am to VABuckeye
The thought is to invest earned money (operating account) into (assets) mutual funds, instead of taking a draw and paying taxes on it. The benefit here would be it grows tax free.
Doesn’t sound like it’s possible and either way would be considered realized earnings, and become taxable. I will ask the CPA when we meet prior to tax day!
Doesn’t sound like it’s possible and either way would be considered realized earnings, and become taxable. I will ask the CPA when we meet prior to tax day!
Posted on 3/5/18 at 7:43 am to Lookin4Par
quote:
The thought is to invest earned money (operating account) into (assets) mutual funds, instead of taking a draw and paying taxes on it. The benefit here would be it grows tax free.
It wouldn't grow tax free though.
Posted on 3/5/18 at 9:36 am to ATLdawg25
Add on a Cash Balance plan to your 401(k). Depending on age and income history you can get contributions between 80k-200k per year on a pretax basis.
Posted on 3/5/18 at 9:36 am to Lookin4Par
quote:
The thought is to invest earned money (operating account) into (assets) mutual funds, instead of taking a draw and paying taxes on it. The benefit here would be it grows tax free.
I know with my LLC you pay the taxes on your profits for the year they were earned...when you choose to take a draw is irrelevant to when taxes are due.
Posted on 3/5/18 at 11:42 am to Lookin4Par
Buy an office building.
Posted on 3/5/18 at 9:47 pm to Lookin4Par
I’m not a tax guy, but from a business perspective you’d want to keep a certain amount of working funds on hand. After that I’d think you want to have a certain amount of reserve. If my business kept 1-2 years of working funds ready, I’d rather keep quite a bit invested before removing it from the business completely. 5-10 years worth invested in something low risk like a mutual fund. Something that paid dividends as well.
Posted on 3/6/18 at 6:06 am to Moots
Understood, I thought maybe by reinvesting that operating account money it would not be considered as realized profits yet. Same way i expense office supplies out of the operating account. Those expenses are pre-tax.
This is a pass thru S-Corp
This is a pass thru S-Corp
Posted on 3/6/18 at 7:12 am to Lookin4Par
quote:
Understood, I thought maybe by reinvesting that operating account money it would not be considered as realized profits yet. Same way i expense office supplies out of the operating account. Those expenses are pre-tax.
An investment is not an expense.
The JE would debit an asset account and credit Cash.
This post was edited on 3/6/18 at 7:16 am
Posted on 4/19/18 at 11:24 am to hungryone
Yea we purchased the office. Need another way to legally pay less taxes!
This post was edited on 4/20/18 at 6:12 am
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