The Kiplinger Letter, which is on tax matters, had a very interesting section. It states that S&P companies are hoarding $1.6 trillion to expand or replace equipment, factories or offices. There is a provision in the tax code that says companies can retain earnings (under the liabilities section on their balance sheets), if they have a valid business reason. It sounds to me that these companies are holding their cash, instead of distributing dividends to shareholders, in a “wait and see” mode – to check the direction of interest rates. The IRS will tax excess earnings at 39.6%. Where is the IRS in all this? It comes after individuals and small businesses. It seems that it is time for them to start checking these “business reasons” more closely.
Why don’t you check your company’s balance sheet and see what you find?
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