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boisemarketer
01-10-2011, 10:07 AM
Can a business create an account at Scottrade or Edward Jones and invest?

Is the profit created from this activity treated as regular business income?

My current business entity is a S-Corp.

Thank you in advance!

Business Attorney
01-10-2011, 10:43 AM
Can a business create an account at Scottrade or Edward Jones and invest? - Yes

Is the profit created from this activity treated as regular business income? - Yes, but there are special rules on passive income of S corporations. If the corporation was previously a C corporation, has accumulated earnings and profits and has passive income that exceeds 25% of the corporation's gross receipts in three consecutive years, the passive income will cause the termination of the election to be treated as an S corporation.

suk
07-23-2011, 06:26 PM
Excellent post! We have this same thought in mind for a long time. Jointly own 50% of a C corp (5 yrs old) which would be converted to S corp coming Jan '12.

We were able to save around $300K so far into our savings account, but really would like to invest that money into stocks to multiply. (Not sure for how many years we would do this, since we have a long term business plan for this money.)

Is it a good idea to form another LLC and transfer the money from INC into the new LLC and then start investing?

Please advise pros & cons of this idea.

Evan
07-23-2011, 11:52 PM
Suk -- you could potentially lose your S-Corp status if your corporation was previously a C corporation, has accumulated earnings and profits and has passive income that exceeds 25% of the corporation's gross receipts in three consecutive years. Losing the S election has many consequences, which in general means the S election to have never occurred. This will affect the corporation, as it will generally owe taxes on its profits, and the treatment to individual shareholders will also mean these "tax-free distributions" of income become dividends. Plus you will owe penalties and interest on this outstanding tax liability.

S-Corps have many benefits, but generally I don't recommend it as an investment vehicle. I'd never recommend it for real estate investments, and I think in general has too many unintended consequences. It doesn't seem like it'd be much different than a partnership, but there are a lot of implications.

You can use an LLC for investments if you'd like.

Mary
07-28-2011, 12:42 PM
I'm not a corporate accountant or counsel but isn't that what a hedge fund is...basically a company that trades stocks for a living.

thebizinator
07-28-2011, 06:16 PM
Yes - you can certainly create a Scottrade or Edward Jones account and invest business capital. In fact, it's actually quite smart to invest business capital because that means you're making it work rather than having it idle in a bank account earning very little interest. You can either do all of the investing on your own or invest with an established firm, it's still business capital and will be recorded as a gain or loss on your company financial statements.

Evan
08-03-2011, 09:11 PM
I'm not a corporate accountant or counsel but isn't that what a hedge fund is...basically a company that trades stocks for a living.

No. That's not what a hedge fund is.

And most companies have investments, as any big company doesn't just keep cash sitting in a non-interest bearing account. That doesn't make Coca-Cola, GE, or Ford a hedge fund.

socalvestor
11-01-2013, 12:57 PM
Can a business create an account at Scottrade or Edward Jones and invest? - Yes

Is the profit created from this activity treated as regular business income? - Yes, but there are special rules on passive income of S corporations. If the corporation was previously a C corporation, has accumulated earnings and profits and has passive income that exceeds 25% of the corporation's gross receipts in three consecutive years, the passive income will cause the termination of the election to be treated as an S corporation.


Isn't income generated from stock and bond trading and dividends received from these investments consider as "Portfolio Income"?

Can an S-Corp. treat all income received from stock dividends and option/stock/bond trading as "Regular Business Income"?

Thanks!