Question

Accumulated earnings - Why do you think some 'tax experts' consider accumulated earnings an important issue to study?

Answer 1

Accumulated earnings are those profits that the company does not distribute as dividends and retains it for future use. IRS charges an accumulated earnings tax on the earnings of the corporations. There will be no tax for accumulated earnings up to $250,000 or such a limit that is within the general business on the company. The same limit is $150,000 for business engaged in accounting, actuarial science, architecture, consulting, engineering, health, law, and the performing arts. Tax experts are primarily interested in studying accumulated earnings since corporations usually engage in unreasonable accumulations to avoid taxes. Also, a tax expert who is in the consulting business may assist his client in over accumulation of profits and avoid penalty on accumulated earnings. These earnings are at times withdrawn by the shareholders as a personal benefit and tax experts involved in law field try to assist their clients to get through IRS audit and scrutiny.