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    2 Replies Latest reply on Sep 15, 2008 1:18 PM by Instructor

    Small Biz Yr End Cash Carryover and Defined Benefit Pension

    lsanschargrin Newbie
      Hi, I've been in business for some time and am a small consultancy. One part of small business accounting that I don't understand is why the tax codes penalize you (in effect) for carrying over funds in your biz account to seed your next year budget.. What I understand is that if I carry funds over, they are considered disbursable and are included in my K-1 even though I elect to leave the funds in the company account to seed next year's budget. I like to carry a good size buffer as a consultancy to cover subs and sales. I heard there were alternatives in structuring entities (I am currently a single S-Corp) that would allow me to avoid this issue. Does anyone know anything about this ?

      Also does anyone have info on creating and managing a "Defined Benefit Pension Plan" that would allow for larger retirement deposits?
        • Re: Small Biz Yr End Cash Carryover and Defined Benefit Pension
          LUCKIEST Guide
          Yr End Cash Carryover, Interesting question, Welcome

          Who are you?? and where are you?? You say that you have been in business for some time.

          Do you have an Accountant and / or an Insurance Agent to ask.

          When you have an accounting question, you should ask the Professional.

          Good luck, LUCKIEST
          • Re: Small Biz Yr End Cash Carryover and Defined Benefit Pension
            Instructor Newbie
            Depending on your organizational structure, you can defer up to $185K a year for your retirement (and partially fund it with company tax savings) in a defined benefit plan; however, there is a caveat; the deferrals in a Defined Benefit plan are mandatory, so you have to know going in that you'll have to make those contributions year after year (whether the money is there or not). Otherwise, the plan unwinds, and you are looking at taxes on all those past deferrals...yikes.

            The big question is the number of employees and whether you have stable, dependable cash flow year over year. In a defined benefit, you are also making contributions for your employees, as opposed to the standard 401k, where your employees bear the responsibility of saving for their own retirement. If you don't have predictable/stable cash flow, a defined benefit plan is not for you. I'd be happy to help.

            As an S-Corp, you are a flow through entity, and as such, whatever revenue is not paid out flows through personally, regardless of where you park it. There are other entities that would definitely provide a sheild between personal and business; it's a matter of weighing the pros and cons of each entity against your unique requirements/situation.