Jasz
VIP Contributor
Accumulated earnings tax is a tax on the amount of income a company has accrued, but hasn't yet paid out as income. It's calculated by taking the amount of income that has been added to your company's books minus any expenses or losses from the same period.
The accumulated earnings tax is paid out at the end of each year and applies to your profits for that year, which means that if you've made an incredible amount of money in a single year, you'll owe more than if you've made less money in multiple years.
However, it can also be viewed in this perspective; Accumulated earnings tax is a tax levied on the total profits of an entity. It is essentially a tax on the value of all the assets that have been accumulated by an organization over time. For example, if an individual or business has $100,000 in assets and $160,000 in liabilities, then their accumulated earnings tax would be calculated as follows:
$160,000 ÷ $100,000 = 16%
This means that if you were to sell off all your assets for $100,000—which would leave you with no more debt—then you would owe 16% on the remaining $80,000.
The accumulated earnings tax is paid out at the end of each year and applies to your profits for that year, which means that if you've made an incredible amount of money in a single year, you'll owe more than if you've made less money in multiple years.
However, it can also be viewed in this perspective; Accumulated earnings tax is a tax levied on the total profits of an entity. It is essentially a tax on the value of all the assets that have been accumulated by an organization over time. For example, if an individual or business has $100,000 in assets and $160,000 in liabilities, then their accumulated earnings tax would be calculated as follows:
$160,000 ÷ $100,000 = 16%
This means that if you were to sell off all your assets for $100,000—which would leave you with no more debt—then you would owe 16% on the remaining $80,000.
