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When and why would I take distributions from my S-Corp?

Forum|Forum|6 years ago
June 7, 2019
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When and why would I take distributions from my S-Corp? What is the tax implication? What is the difference between that and K-1 income?

TurboTax Business Windows

Best answer by bwa

Distributions of previously taxed income from an S-Corporation are not subject to income tax if you have the basis in your stock to cover them. However, they should not be taken before the S-Corporation has paid you reasonable wages (subject to FICA and Medicare Tax) for your services.

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bwaAnswer

Employee

Distributions of previously taxed income from an S-Corporation are not subject to income tax if you have the basis in your stock to cover them. However, they should not be taken before the S-Corporation has paid you reasonable wages (subject to FICA and Medicare Tax) for your services.

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strezo66Author

I do take a small salary but it is not my primary source of income. I have W2 income. The distribution was relatively small. Is there a formula as a percentage distribution to income?

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biggoals

Question. I have had S Corp for 14 years.

The first 10 years I was using it as "Side gigs". I did not take distributions or salary for like 8 years. The next 4 the income increased and I took a reasonable salary and very little distributions.

In 2019 I will probably net only $5000 because I didn't do anything in the S Corp. I do not want to take a salary on $5000 as the fees are ridiculous for that little payroll.

My question is I have a lot of money from the last 14 years that I already paid taxes on. Can I take them as distributions (retained earnings) this year without a payroll in 2019?

It doesn't seem right if you earn $1,000,000 in a year and take $100,000 salary but leave the $900,000 in the account for future years that you would have to take a payroll in a year with no earnings just so you can access the $900,000.

It does make sense that you would have to take a salary in a year you are taking distributions IF you have net income to justify it.

Critter

Employee

Ok ... i highly recommend you talk to a local tax professional to get educated since an S-corp doesn't have retained earnings.

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gbalza541

Good evening!

What happen if i take a distribution about retained earning from prior fiscal year?

For example:

For 2019 fiscal year, i took the total amount of retained earning from 2018 ($20.000). But for this year 2019, the corporation had an earning of $30,000.00. And only i received like compensation of Officers ($5,000.00). Is this reasonable situation?

Thank you in advance!