Taxes · Accountants

Can anyone offer Tax Planning Tips on spending S-Corp consulting revenue for things like R&D?


October 23rd, 2016

I work as an independent consultant and am planning revenue allocations for next year. I have an S-Corp for the consulting company and started a C-corp recently for a separate startup. The S-Corp is my main source of income, I have been in the industry for a few years, and have a good idea of what to expect in terms of Sales and Operational costs.

I'd like to use some of the revenues from the S-Corp to reinvest into other business services and products, including the C-Corp and technologies used by both corporations. Here is a list of some of the things I'd like to put money towards:

a) Savings of 12 Months Operating Expenses
b) R&D in business-related software
c) R&D in a separate business venture
d) Operations in the separate business venture mentioned in option c
e) Acquisitions of smaller competitors
f) Commercial Real Estate

Question 1: Which of the above are subject to State and Federal tax?
Question 2: What is tax liability if expenses go towards a completely different business, trade, or industry venture? (Example 1: McDonalds Revenue from one store spends $500,000 on R&D and Operations for food delivery technology startup. Example 2: Same McDonald's store invests money on a Pet Shop.)

Here is my understanding on how the above entries are taxed (please correct me if I'm wrong and or offer other tips):

a) Revenues are taxed and the remaining amount is counted as Profit. Any business savings should come from its profits (which naturally undergoes taxes).
b) Operational Expenditure
c) Operational Expenditure
d) ? Operational Expenditure or Post Revenue Investment?
e) Capital Expenditure
f) Capital Expenditure

My understanding is that capital expenditures are also accounted over a period of time as a write off based on the long-term value of that investment.

Thank you

Martin Omansky Independent Venture Capital & Private Equity Professional

October 23rd, 2016

You are in need of advice from a tax lawyer and/or CPA. I don't know your ID or location, but I can recommend some reliable professionals if you are in the Northeast. I understand your need for professional help by looking at your first question. The answer is that you are not taxed on revenues, but on profits, and if you have profits from an "S" corporation, the corporate profits are not taxed at all at the corporate level; such profits, distributed to you and other shareholders, are taxed on your personal return. This regulation is so basic that I am confident you can benefit from a proper education in tax and securities laws. Sent from my iPhone

Arthur Lipper Chairman of British Far East Holdings Ltd.

October 23rd, 2016

If the R&D expenditures are related to the growth of the company’s business they should be tax deductible. You may want to pass a resolution expending the scope of the business.