Can an S-Corporation avoid taxes by having a zero balance in the bank by the end of the year?

Answer 1

Everything flows through to the shareholders on the K-1. Bank balance is irrelevant.

Answer 2

This is a horrible old wives tale. An S corporation most likely will avoid paying taxes...no matter what the bank balance is at the end of the year. As a general rule, S corporations DO NOT pay taxes...they pass all income (or losses) down to their stockholders...who indeed, do pay taxes on the income....no matter how much or little cash in in the corporation's bank account at 12/31.

Answer 3

S-Corporations do not pay taxes. Their profits and losses flow through to the shareholder returns via K-1.

The bank account balance is irrelevant. You can still have profits but zero money and you could have losses with a ton of money in the bank.

Answer 4

NO, S-Corps have taxable income that are reported at the shareholder level. The bank balance does not always have a direct relation to the taxable income of the S Corporation's income. There can be other factors that can decrease cash but will not decrease profits. For example, payment of penalities, officer life insuranace, entertainment 50% of, repayment of debt, distribution to shareholders, purchase of long term assets