Question

Question about single member owner of an LLC taxed as an S Corp and owner distributions

Forum|Forum|3 years ago
August 13, 2022
2 replies
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I am a single member owner of an LLC taxed as an S corp. I pay myself a reasonable salary, and also recently started taking distributions. Let's say my company has $200,000 in net profit at the end of this year, and from that next profit I took distributions of $50,000 (on top of my salary). In that scenario, when I file the business taxes would I pay taxes on the full $200,000 and would I then also have to pay personal income tax on that $50,000 in distributions? Or, would the business only be taxed at a profit of $150,000 and then I would pay personal income tax on the $50,000 in distributions?

Not A Product Question

A

Anonymous_

Employee

You are taxed on the full amount of the net income generated by the S corporation.

However, the net income should exclude your "reasonable salary" as you should have taken that salary in the form of payroll (and, as a result, the salary would have reduced the S corporation's net income).

Therefore, the $50,000 in net income (in your example) would be taxable to you (as passed through on your K-1), but would not be subject to self-employment tax.

Question: With respect to the hypothetical $150,000 you took as your salary, did you file 941s for withholding, etc., and issue yourself a W-2?

Critter-3

You have to understand that "draws" you take as an owner of the corp is NOT reported anywhere on your form 1040. The net profits are sent to the 1040 via the K-1 form and you are taxed on that profit in the year it is earned even if you did not take any draws from the company account in the year you earned/were taxed on it. This is a basic bookkeeping concept and if you are at all confused about this situation then please get educated. A sit down with a local bookkeeper/tax pro would be wise if you need help with your bookkeeping and/or get a good bookkeeping program and/or do some research on your own.