Accumulated Earnings Tax A corporation can accumulate its earnings for a possible expansionor other bona fide business reasons. However, if a corporation allowsearnings to accumulate beyond the reasonable needs of the business, itmay be subject to an accumulated earnings tax of 39.6%. If theaccumulated earnings tax applies, interest applies to an underpaymentof tax from the date the corporate return was originally due, withoutextensions. This tax applies regardless of the number of shareholders. Treat an accumulation of $250,000 or less generally as within thereasonable needs of most businesses. However, treat an accumulation of$150,000 or less as within the reasonable needs of a business whoseprincipal function is performing services in the fields of accounting,actuarial science, architecture, consulting, engineering, health(including veterinary services), law, and performing arts. In determining if the corporation has accumulated earnings andprofits beyond its reasonable needs, value the listed and readilymarketable securities owned by the corporation and purchased with itsearnings and profits at net liquidation value, not at cost. The reasonable needs of the business include the following. Specific, definite, and feasible plans for use of theearnings accumulation in the business. The amount necessary to redeem the corporation's stockincluded in a deceased shareholder's gross estate, if the amount doesnot exceed the reasonably anticipated total estate and inheritancetaxes and funeral and administration expenses incurred by theshareholder's estate. The absence of a bona fide business reason for a corporation'saccumulated earnings may be indicated by many different circumstances,such as a lack of regular distributions to its shareholders. cheap hotel in KirchbergThe fact that a corporation has an unreasonable accumulation ofearnings is sufficient to establish liability for the accumulatedearnings tax unless the corporation shows the earnings were notaccumulated to allow its individual shareholders to avoid income tax.