S corp net profit end of year

[zlandar]

Group practice is an S-corp. Partners will receive a distribution at the end of the year with enough in the business account to cover practice expenses for one month (~$1 million). The practice has grown during the year so that figure has increased as more docs are on the payroll.

If the bank account at the beginning of 2020 was $500k and at the end of 2020 is $1 million is that extra $500k considered "profit"? I want to leave enough in the practice bank account so I don't stress if there is a revenue shortfall.

[Tangler]

That is a lot of $. Hire a great cpa and advisor.

[jacoavlu]

it’s not about what’s in the bank

S Corp profit (or loss) is about the numbers on the Corp tax return. 2020 Income minus deductible expenses.

[jfoxcpacfp]

The practice bank account change can “somewhat” mirror profits (since you’re cash basis, right?), but becomes further away from reality the larger the practice is. There’s a lot going on and this is the wrong place to be getting these answers. I mean, glad you’re here, but free advice, even from professionals, who do not know the practice’s accounting inside-out can be very, very expensive.

[zlandar]

The practice bank account change can “somewhat” mirror profits (since you’re cash basis, right?), but becomes further away from reality the larger the practice is. There’s a lot going on and this is the wrong place to be getting these answers. I mean, glad you’re here, but free advice, even from professionals, who do not know the practice’s accounting inside-out can be very, very expensive.

Fair enough. I sent the group CPA a quick email on the subject. I'm so used to looking up things myself and then asking forums if I can't figure out the answer.

[White.Beard.Doc]

End of year cash in an S-Corp has a relation to profits, but there are a bunch of adjustments to be made. Some examples: take off Medicare advance that has to be paid back in 2021. Take off pension contribution for 2020 that remains to be paid in 2021. Take off PPP loan to be forgiven, but take that off of taxable income, then leave it in for calculating distributions. There are more items like these, but they are unique to each practice structure or business structure.

[jhwkr542]

That's a rough guess. But it's murky. Profit = revenue minus expenses. But you need to account for loans, depreciation, etc, that can have an effect on cash without necessarily affecting profit or vice versa. You could also write the checks for s corp distributions but not cash them for a couple of weeks.

[zlandar]

End of year cash in an S-Corp has a relation to profits, but there are a bunch of adjustments to be made. Some examples: take off Medicare advance that has to be paid back in 2021. Take off pension contribution for 2020 that remains to be paid in 2021. Take off PPP loan to be forgiven, but take that off of taxable income, then leave it in for calculating distributions. There are more items like these, but they are unique to each practice structure or business structure.

The group did get a sizeable advance from Medicare in the spring so I'm confident we don't have a paper profit for 2020.

We do have a CBP but we usually pay off the amount owed in the same year. We do run 401k profit sharing a year behind.

[jacoavlu]

The group did get a sizeable advance from Medicare in the spring so I'm confident we don't have a paper profit for 2020.

at this moment, it seems that CARES act grants are taxable income.

Who is determining the amount of your end of year distributions? Is your goal to match distributions to Corp calendar year profit? Or to simply distribute as much as possible, and leave enough in the bank to pay expenses?

[zlandar]

Or to simply distribute as much as possible, and leave enough in the bank to pay expenses?

That’s the goal.

The Medicare advance is a loan isn’t it? CMS has said it intends to collect the amount after a year:

https://www.cms.gov/newsroom/press-releases/cms-announces-new-repayment-terms-medicare-loans-made-providers-during-covid-19

Group also received a Medicare grant and we counted that as revenue.

[jacoavlu]

That’s the goal.

The Medicare advance is a loan isn’t it? CMS has said it intends to collect the amount after a year:

https://www.cms.gov/newsroom/press-releases/cms-announces-new-repayment-terms-medicare-loans-made-providers-during-covid-19

Group also received a Medicare grant and we counted that as revenue.

sorry, my confusion. Yes Medicare advance is essentially a loan.