I am set up as an S Corp. Is there any way that I can “save up” for the purchase of the building without having to pay taxes on that money?
No, that “money” represents s-corp profit which will be taxable. There is just no way around that.
I need to save about 160k for the down payment, but as I get close, the year ends and I have to pay personal income taxes on that since the “profit” from the S corp turns into “income” on my personal return.
Yep, taxes will be due. If you receive gifts or loans as part of your $160k needs those are not taxable. However, lenders may not count that towards your down payment requirement either.
I just want to save the money up without having to pay personal income taxes on it since it’s a purchase for the practice by the practice.
If the generation of these moneys is from a taxable activity you’ll pay taxes on it.
Why do I have to pay it with my personal money?
Because those are the rules of being an S-corp., any profits remaining in the entity are taxed on your personal return.
Is there anyway to place this money into a certain type of business account so that it isn’t taxed?
You could create a retirement plan and fund it with some of those dollars, not $160k though and you’ll probably have to share it with your employees. I’ve been hearing of folks using their ret plan assets to invest in real estate though I don’t know the details.
The bottom line is you’ll need to pay the tax, there’s just no magic way to avoid it.
Tim, slightly different version of the same question. We have the dental practice as an S corp also but we do own our building which is held separately in an LLC. We pay rent each month from the practice to the LLC. Could we bump our rent by, let’s say $1000 a month, and leave it in the LLC without being taxed? So a pool of money for future repairs would be accumulating but in the LLC instead of the S Corp?
Depends on the expenses of the LLC. the $1,000/month IS additional income to the LLC and if it adds to the LLC’s taxable income, it will be taxable to someone. IF the LLC has taxable losses in excess of $12,000/yr then theoretically you could “shift” income to the LLC of $12k and NOT create a tax liability.
Just be sure the monthly rent remains reasonable for the area and the services covered in the rent. And make sure the lease allows the LLC to increase the rent by $1,000 to the s-corp…