Let's say I create a corporation which is owned by one person. The corporation makes money from investing. I hire 2 or 3 people to work for my corporation(but still 100% owned by me). after 15 years, the corporation stops operating and shuts down. What happens to the retained earnings(retained earnings from investments)? Does the owner(which is me) just takes all the retained earnings? Do I pay taxes on it(even though the corporation already paid capital gains tax on the earnings?)
If a corporation is owned by one person(me), what happens to the corporate's retained earnings when the corporate shuts down?
byu/cakewalk093 intax
Posted by cakewalk093
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After settling expenses and liquidating assets, the cash assets are paid to shareholders. That’s you. Yes, there is double taxation.
when you dissolve the corporation, retained earnings typically get distributed to you as the owner. yes, you pay taxes on it, even if corporation already paid taxes. usually as dividend income or capital gains. consult a tax professional for specifics.
Assuming this is a C Corporation, you don’t receive retained earnings, but you do receive any assets remaining in the corporation after all the debts are settled, which will likely trigger a taxable capital gain or loss depending on your initial investment in the corporation. It may be easier to think of it as you are selling all of your stock in the corporation in exchange for whatever assets are remaining in the corporation.
Get to a CPA that does tax work. You have to watch Section 311(b) and the potential for gain in the corporation on the assets distributed. You will also have the potential for income personally (Section 331).