How to take a S Corp Distribution

I am a sole owner of an S corp. I pay myself a resonable salary (120k/year, about 70% of total gross recipts), and expect to have a net operating profit of 20-30k.

1. I want to know should I pay the remaining cash in the companies account out as a bonus, or take it as a distribution. My Basis in the company is effectivly zero ( I have already re-imbursed all expenses laid out).

2. Should I reduce my income for the remainder of the 2011 tax year to bring it around 60%, and increase the amount of distribution.

Would the Distribution be taxed at the normal income rate, or as capital gain (15%) and obviously avoid the payroll taxes on the distribution amount.

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Hi Linda,

I have a small business set up as an s corp. I'm pres and my wife is vice president. She doesn't really have any day to day activities, I just thought I would make her VP. Should I split the shares 50/50? or give her any? What legal reasons would I not include her?
Thank you

Hi Linda,

My ordinary business income after salary and expenses was $10,684 in 2009, and $8,436 in 2010. I took a distribution on 2,905 (in 2010), Does this leave me with a current basis of 16,215?

Thanks
Chris

Do I record these on the 941 form if I also pay myself salary?

In 2010 I paid myself 90% salary and 10% Distribution but recorded the total amount in Box 2 on 941 (wages, tips and other compensation) - is this correct, or should the distribution amount be recorded on another form?

Thanks

I recently became incorporated. Before i was self employed, i am thinking of retiring and my daughter will be taking over. She is 1/2 owner of the company as well, so we both have equal shares in the corp. We both take the same salary of $35,000 a year. After all of our dedictions, health, rent, gas, car expenses, etc) we have a profit on the company of $30,000. Per schedule K we split profits $15,000 each. Do you have to take the whole amount of profits and split evenly or can we just split say $5000 each? and have the remaining as pass thru entity? If i choose to not take any profits and keep all in the business as pass thru entity, then do we do a schedule k, or who is responsible for paying the taxes on the $30,000. I know if we take our equal shares of $15,000 then we are both individually responsible for paying taxes on the $15,000. But that tax should be less self employment tax, correct? Also if we share the profits, do i just write myself a check out of the business, how do you do that for proper tax purposes?

Hi,
This should be really simple answer to the tax pro. All S corp earning reported in K1 will be rolled over in the shareholder's personal tax return and that is very clear and simple. This money goes into the retained earning in your book. So in accounting book, how can I take this money from the company which has been paid in taxes already. what entries do I have to make in accounting book? I hope I don't have to pay any taxes.
Thank you,
SP

Hi Linda,
For the following hypothetical situation, S corp sole ownership with reasonable profit (<80k) and expenses (<10k), is it better to have a slight profit or it is feasible to have an officer compensation that brings the corp net income into the negative bracket? If one has not been making quarterly payroll tax payments, will the full amount be due on the officer compensation? For arguments sake, would it be more advantageous to not take any officer compensation?

Many thanks for your help!

Hi and thanks for any response to my situation. I have a Sub-S corp and am the sole shareholder. I have taken distributions for the past 3 yrs but have not drawn any wages. The distributions were to cover the tax burden I needed to pay personally on my 1040. After checking into this I read that that is not recommended. I only work about 5 hrs a week for this Sub-S. My other Sub-S provides my income (actual wages paid & taxes deducted).

What is my best "fix" to this for the un-filed 1120S years I will be filing this month before my 3 year limit is up? Do I rework them, change the distribution to 60/40 wages & file the 941's to correct & just pay the penalty's? It it less penalty if I correct than having them see 0 for Compensation to officers line 7 of the 1120S and audit? I do want to fix it right & be done with it. If you can't do that, so be it. Wasn't an intended dodge, just didn't know you can't till now.

Thanks for your help. Started paying myself a wage in 2010 and will continue to do so. My mistake thru ignorance. Was told to take a Distribution from a CPA years ago, not wage on the new S corp.

Aster

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I have a new business and have classified it as an S Corporation, I am finally to the point that I have exhausted most of my savings and need to stop reinvesting all income back into the business and need to start to take distributions. I have two questions:

1) As the business is less than 6 months old, how much longer may I take straight distributions without classifying myself as an actual employee?

2) Is there a cap to how much I can take as a distribution (at one time, or annually)?

If I am the only officer in my S Corporation, and I pass away, how does my spouse take control of the business?

Dear Linda,

Thank you so much for helping everyone here. I read all the posts but I am still a little confused. I just opened a one person S-corp, so I am very new.

I would like to make an example:

If my Company profit at the end of the year before payroll is $60K, my salary for the year is $36K, I know the business income will be $24K.

As you said in other posts before, if the business income sit in the S-corp, it WILL NOT be taxable. The only taxable part is the personal income tax from my salary, which is the $36K * 15.3%.

Let's say, I want to take $4K as distribution from the business income($24K), I will write myself a check as "Property distribution". Will I be taxed on the $4k as part of my personal income tax?? And will the tax rate be the same as the salary @ 15.3%? And the rest of the $20K business income will have no effect and sitting in the company for company use?

Thank you very much for your time & help, I really appreciate it!!!

I did not receive an answer for this question last year so I am asking it again.

Regarding this suggestion you made back on 2008-01-21:

'I create a "Distributions" equity account in QB. You can use the "Tax-Line Mapping" field to map entries in the account to "Schedule K-Other Items: Property Distributions (including cash)".'

When I import from QB into TT, it puts the EOY account balance of this Distributions account into 1120S, Schedule K, line 16D, not the amount of distributions for the year. This includes the previous year (first year of our business). Is this correct? Isn't line 16D supposed to contain just the current year distributions? This total amount carries to the Distributions line on Schedule M-2 and that appears to be expecting a one year amount. What am I doing wrong?

Also, another person pointed out that QuickBooks give you a warning when editing the account, that the account type is incorrect for the tax line mapping.

Putting the above two issues together imply to me that the account type for distributions should be an expense account. The amount imported is an annual amount and you don't get a warning from QuickBooks. But, now we have an incorrect increase in expenses.

Thanks, Kevin

Please be reminded that an S Corporation is a "flow through" entity in that all of the net earnings from the S Corporation flow down to and are reported on the owner/shareholder's personal return. Therefore careful consideration of these issues and tax planning for each personal shareholder's other income, itemizations, exemptions, etc. should be considered and carefully contemplated when extending S Corporation owner's personal returns. Keep in mind that the extension of the corporate return does not also automatically also extend the personal return which is due on April 15, 2009.

Hi,

I have been reading all of the postings and responses and have been learning alot. Thank you for all of the information. I have an S-corp, and unfortunately have had to use 3 different accountants to date. I am in process of doing my 2007 & 2008 tax returns.

I have a loan to the shareholder with a balance due me in excess of $40k. My M-2 from 2006 shows a balance of $4,903. The net loss for 2007 is over $25k. Can we use the loan from shareholder to make the basis enough to write off the entire $25k loss for 2007?

If not, how can we change the situation so we could write off the entire loss? There will also be a loss in 2008 between $10-$20k. The business was temporarily shut down for the last 9 months of 2008 due to health reasons, so the shareholder payroll was low.

thanks
Ken

My partner and I have a architectural design build firm
We do not take payroll but take distributions as compensation for officers.
We each took 75,000 last year, after our expenses our K-1 distribution was about 9000 each.
We will report this on our individual tax forms on Schedule E.
Our bookkeeper says we need to file a 1099-MISC for the 75000 as well.
I believe this is incorrect.
Could anyone clear this up for us.
Our total income was 400,214 with total deductions of 383,477.
We had a build project with a majority of that cash flow going to building supplies and sub contractors.

All other issues aside on this original questions, I am doing the taxes today on my S corp I wish I had taken more distributions from last year's profit. Can I legally take a distribution now and mark it on the books and my K-1 for 2008 as Brenda asked?

I could take it now, but business is bad and I don't want to get dinged for having taking distributions this year without continuing my salary (if things get bad enough that I have to stop my salary).

This is exactly what I am trying to find out... please respond to this question... THANKS

Hello Linda , I saw some funny postings yesterday and I hope that sillypeople refrain from spoiling the value this web site adds.
Now to my question :

If I am a single owner / employee S Corp who made 25000$ last year and have 16K in payroll and 4K in expenses , why can't I take 5K in distribution ? And if I can , then how do I get it - do I give myself a 1099 MISC ?

Next questions is that if I do not take tis distribution, still I pay the taxes as pass through entity , so what is the deal about not taking the distribution ? I do not understand. Isn't it simple for me to even out by leaving the S Corp at 0 dollars on day one of the new calendar year ?

Linda
Thanks so much for this very informative site.
I have an S corporation. Usually I pay enough salary to make end of the year income/loss pretty low (approx $1000 one way or the other)to report on my 1120S. This year it is $7000 income, so it is costing me about $3000 on my personal income taxes. In the past I have never taken a distribution, but I am wondering if I should do one for $7000 for 2008. If I do not do this, I would probably just use the business income to pay salary in 2009, thus paying taxes on it again. It just does not seem right to leave the money after I pay taxes on it.

I have had the S corp since 1992 and over that time my yearly losses and SEP-IRA payments have made my cash and B/L about (-120,000). I do not know if that affects my ability to take a distribution, or if distributions are based on yearly income and loss.
Any info is greatly appreciated.
THANKS!!!

Linda

just wrote a long message and it was deleted

Hi Linda,

Thanks for the great forum you have here. I have a few questions as I have just incorporated a new S-corp of which I am the sole director and officers, and it is I who will act as the principal consultant and bring in any money that the company makes. I incorporated through "The Company Corporation" on the web, and entered "0 employees" when I filled out the EIN forms. My questions:

- I expect to make about 100-150K per year in profits (revenue minus expense not including salary)

- I understand that I can take a combo of salary (reasonable) and distribution from company profits.

- Should I be taking a salary at all especially since the company has only one director/officer but no employees? Or should I take salary because I am the principal consultant bringing in the money?

- If I take salary, must it be regularly taken? Can it be taken once at year end? If I take a salary, can I determine the amount at year end depending on the profits? Should I have some sort of payroll process? Should I withhold FICA etc.? Should I issue W2s at year end? Do all these things need to be done even for a single employee owner taking salary?

- One of my existing customers wants me to remain a independent contractor and pay me thru 1099. Can I deposit the checks on my ICA invoices into my S-corp and call that S-corp revenue? Or will that be treated as an investment on my part in the S-corp and increase my basis?

- Should I hold regular board meetings and keep minutes etc.? How does that figure for a single person company.

- I would appreciate any usual and normal advice you'd give to a single person S-corp.

Thanks.