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Question for the Money Doctors

Question submitted on Jun 25, 2011.

Question

An electrical contractor has $100,000 (net profit/retained earnings) in the bank in December. He wants the keep it all available for large construction projects that are open for bids in January & February. But, he has to pay a large tax bill for the retained earnings. I know you're going to ask me for more info, but I don't know what that info would be. And, I know he should be taking advantage of qualified plans to reduce his tax bill. But, can you make a suggestion or offer a direction? He has a CPA.

Answer

The simple answer is that yes, he is probably going to have to pay tax on the net profit.  Once taxed though, it will be after-tax money that he can use as he pleases.  He should meet with his CPA and go over the situation.  His CPA will know the situation and be able to give a recommendation of how to proceed.  Thank you.


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