Cash sitting in business account...what to do?

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Topic Author
AK59
Posts: 89
Joined: Fri Aug 16, 2019 7:52 pm

Cash sitting in business account...what to do?

Post by AK59 »

I have maxed out my Roth IRA and will continue to do so going forward.

I am in the process of setting up a Simple IRA and should be able to max that out next year both my contributions as an employee and as employer.

On the current trajectory my business is in (file as an S-Corp), I should still have profit left over in my business that I am looking to put somewhere. I have the cash reserves I need and will still portions of my profit to reinvest into the business, but again I should still have $1-2k/month left to put somewhere else.

With the current maximizations of my retirement portfolio, where would it be best to put this money? Could I just put it into a business brokerage account and expand my investments, or is it not worth it based on the tax efficiency? Could I take a bigger distribution? What else can/should I do with the excess cash?
hackandblaze
Posts: 5
Joined: Sun Jul 07, 2019 6:44 pm

Re: Cash sitting in business account...what to do?

Post by hackandblaze »

If you don’t need it in your business, then I’d take the distribution (set aside enough to cover the taxes on it) and then invest the rest in a taxable brokerage account. This is what I’ve done for several years and it’s awesome to see how fast it has grown. You could also pay down your mortgage (if you have one) with that money or a little bit of both. This is assuming you have an adequate emergency fund and no consumer debt. Congrats on your profitable business!
TheDDC
Posts: 1390
Joined: Mon Jan 08, 2018 11:11 am

Re: Cash sitting in business account...what to do?

Post by TheDDC »

AK59 wrote: Sat Jun 12, 2021 5:39 pm I have maxed out my Roth IRA and will continue to do so going forward.

I am in the process of setting up a Simple IRA and should be able to max that out next year both my contributions as an employee and as employer.

On the current trajectory my business is in (file as an S-Corp), I should still have profit left over in my business that I am looking to put somewhere. I have the cash reserves I need and will still portions of my profit to reinvest into the business, but again I should still have $1-2k/month left to put somewhere else.

With the current maximizations of my retirement portfolio, where would it be best to put this money? Could I just put it into a business brokerage account and expand my investments, or is it not worth it based on the tax efficiency? Could I take a bigger distribution? What else can/should I do with the excess cash?
”Baby steps…” do you have any debt to pay off in either your business or personal portfolio? Tackle that first.

-TheDDC
Rules to wealth building: 75-80% VTSAX piled high and deep, 20-25% VTIAX, 0% given away to banks, minimize amount given to medical-industrial complex
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JonnyDVM
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Location: Atlanta, GA

Re: Cash sitting in business account...what to do?

Post by JonnyDVM »

AK59 wrote: Sat Jun 12, 2021 5:39 pm I have maxed out my Roth IRA and will continue to do so going forward.

I am in the process of setting up a Simple IRA and should be able to max that out next year both my contributions as an employee and as employer.

On the current trajectory my business is in (file as an S-Corp), I should still have profit left over in my business that I am looking to put somewhere. I have the cash reserves I need and will still portions of my profit to reinvest into the business, but again I should still have $1-2k/month left to put somewhere else.

With the current maximizations of my retirement portfolio, where would it be best to put this money? Could I just put it into a business brokerage account and expand my investments, or is it not worth it based on the tax efficiency? Could I take a bigger distribution? What else can/should I do with the excess cash?
You take the money as a distribution and invest in a taxable account.
I’d trade it all for a little more | -C Montgomery Burns
Topic Author
AK59
Posts: 89
Joined: Fri Aug 16, 2019 7:52 pm

Re: Cash sitting in business account...what to do?

Post by AK59 »

TheDDC wrote: Sat Jun 12, 2021 6:21 pm
AK59 wrote: Sat Jun 12, 2021 5:39 pm I have maxed out my Roth IRA and will continue to do so going forward.

I am in the process of setting up a Simple IRA and should be able to max that out next year both my contributions as an employee and as employer.

On the current trajectory my business is in (file as an S-Corp), I should still have profit left over in my business that I am looking to put somewhere. I have the cash reserves I need and will still portions of my profit to reinvest into the business, but again I should still have $1-2k/month left to put somewhere else.

With the current maximizations of my retirement portfolio, where would it be best to put this money? Could I just put it into a business brokerage account and expand my investments, or is it not worth it based on the tax efficiency? Could I take a bigger distribution? What else can/should I do with the excess cash?
”Baby steps…” do you have any debt to pay off in either your business or personal portfolio? Tackle that first.

-TheDDC
No business debt.

Only personal debt is the mortgage on our house at 2.1%.
Topic Author
AK59
Posts: 89
Joined: Fri Aug 16, 2019 7:52 pm

Re: Cash sitting in business account...what to do?

Post by AK59 »

hackandblaze wrote: Sat Jun 12, 2021 6:01 pm If you don’t need it in your business, then I’d take the distribution (set aside enough to cover the taxes on it) and then invest the rest in a taxable brokerage account. This is what I’ve done for several years and it’s awesome to see how fast it has grown. You could also pay down your mortgage (if you have one) with that money or a little bit of both. This is assuming you have an adequate emergency fund and no consumer debt. Congrats on your profitable business!
No consumer debt, emergency fund set.

So better to take as a distribution and put into a taxable brokerage account versus a business brokerage account?

I do like the idea of keeping it in my business account if I want to withdraw for another investment such as building in 5-10 years. Would it be best to just reinvest my capital back into the business at that point from a tax efficiency angle?

I believe (at least to my understanding) is that my distribution total cannot exceed a certain ratio in regards to my business?
Rex66
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Joined: Tue Aug 04, 2020 5:13 pm

Re: Cash sitting in business account...what to do?

Post by Rex66 »

If u really want that then best option is cash balance defined benefit plan. Likely though you are making life too complicated and won’t get much juice from the squeeze
hackandblaze
Posts: 5
Joined: Sun Jul 07, 2019 6:44 pm

Re: Cash sitting in business account...what to do?

Post by hackandblaze »

AK59 wrote: Sat Jun 12, 2021 6:28 pm
hackandblaze wrote: Sat Jun 12, 2021 6:01 pm If you don’t need it in your business, then I’d take the distribution (set aside enough to cover the taxes on it) and then invest the rest in a taxable brokerage account. This is what I’ve done for several years and it’s awesome to see how fast it has grown. You could also pay down your mortgage (if you have one) with that money or a little bit of both. This is assuming you have an adequate emergency fund and no consumer debt. Congrats on your profitable business!
No consumer debt, emergency fund set.

So better to take as a distribution and put into a taxable brokerage account versus a business brokerage account?

I do like the idea of keeping it in my business account if I want to withdraw for another investment such as building in 5-10 years. Would it be best to just reinvest my capital back into the business at that point from a tax efficiency angle?

I believe (at least to my understanding) is that my distribution total cannot exceed a certain ratio in regards to my business?
Honestly I’ve never heard of a business brokerage account so I couldn’t advise on that.

There’s a lot of nuances in you personally owning a building vs the business owning it. I’d run that by my CPA.

Since you’re filing as an S-Corp, you personally are paying the tax on the profit so it makes more sense to me to take the profit, pay the tax, and invest the amount you want. To my knowledge there’s no limit on your distribution because you are realizing that profit (income) anyway on your personal tax return being the owner of an S-Corp. I’m no accountant though….
am
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Joined: Sun Sep 30, 2007 9:55 am

Re: Cash sitting in business account...what to do?

Post by am »

hackandblaze wrote: Sat Jun 12, 2021 6:50 pm
AK59 wrote: Sat Jun 12, 2021 6:28 pm
hackandblaze wrote: Sat Jun 12, 2021 6:01 pm If you don’t need it in your business, then I’d take the distribution (set aside enough to cover the taxes on it) and then invest the rest in a taxable brokerage account. This is what I’ve done for several years and it’s awesome to see how fast it has grown. You could also pay down your mortgage (if you have one) with that money or a little bit of both. This is assuming you have an adequate emergency fund and no consumer debt. Congrats on your profitable business!
No consumer debt, emergency fund set.

So better to take as a distribution and put into a taxable brokerage account versus a business brokerage account?

I do like the idea of keeping it in my business account if I want to withdraw for another investment such as building in 5-10 years. Would it be best to just reinvest my capital back into the business at that point from a tax efficiency angle?

I believe (at least to my understanding) is that my distribution total cannot exceed a certain ratio in regards to my business?
Honestly I’ve never heard of a business brokerage account so I couldn’t advise on that.

There’s a lot of nuances in you personally owning a building vs the business owning it. I’d run that by my CPA.

Since you’re filing as an S-Corp, you personally are paying the tax on the profit so it makes more sense to me to take the profit, pay the tax, and invest the amount you want. To my knowledge there’s no limit on your distribution because you are realizing that profit (income) anyway on your personal tax return being the owner of an S-Corp. I’m no accountant though….
My wife has a business brokerage account at vanguard. It has a separate login. There’s certain money market funds she can’t use as a business entity. Not sure what advantages there are to using her personal versus business account for investing? Right now the money in the business account is in a money market.
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JonnyDVM
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Joined: Wed Feb 12, 2014 6:51 pm
Location: Atlanta, GA

Re: Cash sitting in business account...what to do?

Post by JonnyDVM »

am wrote: Sat Jun 12, 2021 6:55 pm
hackandblaze wrote: Sat Jun 12, 2021 6:50 pm
AK59 wrote: Sat Jun 12, 2021 6:28 pm
hackandblaze wrote: Sat Jun 12, 2021 6:01 pm If you don’t need it in your business, then I’d take the distribution (set aside enough to cover the taxes on it) and then invest the rest in a taxable brokerage account. This is what I’ve done for several years and it’s awesome to see how fast it has grown. You could also pay down your mortgage (if you have one) with that money or a little bit of both. This is assuming you have an adequate emergency fund and no consumer debt. Congrats on your profitable business!
No consumer debt, emergency fund set.

So better to take as a distribution and put into a taxable brokerage account versus a business brokerage account?

I do like the idea of keeping it in my business account if I want to withdraw for another investment such as building in 5-10 years. Would it be best to just reinvest my capital back into the business at that point from a tax efficiency angle?

I believe (at least to my understanding) is that my distribution total cannot exceed a certain ratio in regards to my business?
Honestly I’ve never heard of a business brokerage account so I couldn’t advise on that.

There’s a lot of nuances in you personally owning a building vs the business owning it. I’d run that by my CPA.

Since you’re filing as an S-Corp, you personally are paying the tax on the profit so it makes more sense to me to take the profit, pay the tax, and invest the amount you want. To my knowledge there’s no limit on your distribution because you are realizing that profit (income) anyway on your personal tax return being the owner of an S-Corp. I’m no accountant though….
My wife has a business brokerage account at vanguard. It has a separate login. There’s certain money market funds she can’t use as a business entity. Not sure what advantages there are to using her personal versus business account for investing? Right now the money in the business account is in a money market.
I’m assuming you have an LLC and file as an S-Corp. Thats the common set up. This is called “a pass through” entity, because the money flows through your business to you untaxed. The value in having a separate brokerage for your business with such a structure is really nothing. The money will pass through to you and you pay your normal income tax rate. If you had a C-Corp structure, that’s when a business brokerage account starts to make sense I would think.

Yes, there is a ratio or number where you want your salary vs distribution to be. I’m not an accountant, but my understanding is there is a number where you can no longer file as an S-Corp. At least that’s what I was recently told. If you’re talking about taking 1-2k out as a distribution- well you aren’t close to it yet. So don’t worry about that.

Finally, you wouldnt want money sitting around doing nothing for 5-10 years. You would just borrow the money in 5-10 years to build. The interest would be deductible. If you’re successful at your business banks will throw money at you.

So take it as a distribution. This is why you have a business. Pay yourself through your pass through entity. Max out your tax advantaged space (Roth, IRA, HSA) then Invest in a taxable account. Next we can talk about tax loss harvesting…
I’d trade it all for a little more | -C Montgomery Burns
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