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    5 Replies Latest reply on Jan 24, 2012 9:22 AM by UncleLeon

    Where should i put my profit from my small business

    investorraj Adventurer

      Hello,

       

      I have a side business apart from my full time job,  in which i make a profit of almost 50K a year.Mine is a LLC taxed as S Corp.

      My question is how much of that money can i withdraw from my business bank account and put that in other investments ?

       

      Am i allowed to do that or should i keep all my profit it my bank account ?

       

      Thanks  in advance !

        • Re: Where should i put my profit from my small business
          myDealCompass Scout

          I would recommend you look into various retirement savings options for your small business. Depending on your situation it might allow you to access a significant amount of tax-advantaged space. With all these things, I would recommend talking to a professional who is familiar with your particular situation.

          • Re: Where should i put my profit from my small business
            LUCKIEST Guide

            Welcome, It is nice that your business makes a profit and that you have excess money.

             

            Do you have an accountant?? That is who you should ask.

             

            LUCKIEST

            • Re: Where should i put my profit from my small business
              UncleLeon Scout

              Establish a "Reserve Account" ...a savings account of some kind, for now, just to get the funds out of your operational account.  Continually put reserve funds into that account.  If you need some of these funds to expand your business, simply transfer them back, as needed.  There is no 'legal reason why you can't transfer funds into and out of your main business accounts.  Just don't mix business funds with personal funds.  (That's not illegal....just bad business.)

               

              Then ask yourself:  "How much of that income can I live without until I'm at least 59 1/2 years old."   Then establish a tax-deferred "retirement account" for those not immediately needed funds.  When I did this, it was a SEP account.  For some, it's just an IRA.  Or; if you believe that your tax rate will be as high (or nearly as high) when you retire, you may prefer to just pay tax on the funds and put the funds into a "Roth" account.  - Talk to your accountant.

               

              Another consideration as to WHERE you want your SEP or IRA account, will depend upon how you intend to invest these funds while they are waiting for your retirement.  If you intend to totally use only stocks or mutual funds, a brokerage will do.  However, if you want to invest in Real Estate, or in some other business (such as another corporation that you may own) you will want the funds somewhere where you can have a "self-directed" IIRA.

               

              Again... discuss this with your accountant.

                • Re: Where should i put my profit from my small business
                  investorraj Adventurer

                  Thanks UncleLeon for the detail answer.I know its a bad practise to transfer funds from business to personal, but is it okay to transfer some money from business to my mortgage ? Or i was even wondering to take some money out and put that in a CD ?

                   

                  Apart from that, since im an LLC taxed as S Corp, i am taxed only when i am taking a salary.

                  i wonder when do they tax the rest of my side business income ?May be that's why i am hesistant to move some of my business money to mortgage or real estate or a CD..

                   

                  Thanks for your advice !

                    • Re: Where should i put my profit from my small business
                      UncleLeon Scout

                      Thanks UncleLeon for the detail answer.I know its a bad practise to transfer funds from business to personal, but is it okay to transfer some money from business to my mortgage ?  No, not directly.  what you should be doing is srawing a salary.  This should be a fixed salary every pay period.  It's also reasonable to draw a "bonus" (perhaps quarterly, or annually) when the business performance warrants it.   You can use your "Salary" to pay your mortgage.

                       

                      ....since im an LLC taxed as S Corp, i am taxed only when i am taking a salary.  Huh ???  I think you may be mistaken about that.  - Again, talk to your accountant.

                       

                      And about CD's....P f f f f t !  Well...that's just my opinion.  .... Inflation eats more of your savings than a CD pays.

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