USA Accumulated or Retained Earnings Taxed?


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One would think that finding the answer to this would be relatively straightforward, but I literally spent hours googling and couldn't find an answer.

I get that there's a special tax the IRS can levy if these accumulated/retained (I've seen both terms used) earnings go over a certain amount, like $250K. That's not my question. My question is whether or not these earnings are taxed BEFORE any other special IRS tax kicks in.

1) Lets use a C corp as an example. To make it simple, lets say this is the first year the business was created and operating. Then comes end of year tax time. Lets say after expenses (not tax expenses, but other expenses of operating the business e.g. rent, utilities, etc.) the corp has $100K left. Lets say the corp wants to move all of this into retained or accumulated earnings. The question is, is it taxed by the IRS as "income" or whatever else it would be called? Or is it not taxed? Again, I'm not asking about the special tax if you go over $250K (or whatever that number is).

The basic question is whether you can accumulate up to $250K or whatever that number is (I understand it can be less for some types of businesses) for legitimate business purposes without paying taxes on it.

2) A secondary question is whether the answer to #1 is different for different types of corps (I get that for an S corp this would be different).

Thanks.
 
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kirby

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For question 1, let's say you start a new business. End of the year you have $300K profit. You will pay income tax on that. Say the tax was $50K. Then, as you say, you can hold the $250 K in retained earnings without additional tax on accumulated earnings.
 

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