Are retained earnings after tax profits?
Answer Retained Earnings are those dollars that are held by the corporation. Profit might be used to make capital investments or buy inventory, that would not be “retained earnings”. And this phrase refers to the accumulation of dollars over time. For example if you consistently realized $50,000 of profit each year and retained it, by the 5th year you’d be in excess of $200,000 retained earnings. I imagine that your question was sparked from a discussion of such earnings being taxed at a possibly higher rate. So let’s cover all the important points. The “Excess Retained Earnings Rules” allow the IRS to add a penalty tax of 5%. And the IRS has claimed that they would impute that tax on retained earnings in excess of $150,000 to $250,000. The Fear Mongers use this to imply that being successful (profitable over time) in a Real Corporation would result in not enjoying the nice low tax brackets that are reserved for real corporations but a higher total tax. If those are the rules and they
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