Does S-Corp generate 1099-DIVs and send to IRS and shareholders?

[mprlllee]

Does S-Corp generate 1099-DIVs and send to IRS and shareholders when shareholders take distributions? I know S-Corp shareholders take distributions but not dividends and S-Corp sends shareholders K-1s. 

[Rachel_W · Accepted solution]

No, your S-Corp doesn't need to issue Form 1099-DIVs when shareholders take distributions.  Like you mentioned above, these distributions should be reported on each shareholder's K-1.

The distributions are not tax deductible to the S-Corp and they are not taxable income to the shareholders.  The distributions are a return of the shareholder's paid in capital and reduce their shareholder equity.

[mcarde12]

Ok so if these distributions are not tax deductible to the S Corp, does this net profit get passed on to the shareholder as ordinary income? If so, what taxes are imposed on a personal level?  I was under the impression that the distributions are tax free to the shareholder.

[KathrynG3]

The net profit does get passed through to the shareholders as ordinary income and it is taxed as income tax. It is not also taxed as self-employment.

The shareholder working in the business must be paid a reasonable salary. This would require social security and Medicare taxes to be withheld and paid, as well as federal and state income taxes to be withheld and paid throughout the year.

Distributions to shareholders that are equal or less than the shareholder's portion of net income plus the shareholder's contribution to the company would be tax free distributions.

The shareholder portion is reported on Schedule K-1 and included in the shareholder's individual income tax return. The wages earned are reported as earned income on Line 1 of Form 1040.

For more information about paying tax on S-Corp income for the shareholder, see: Where do I enter a K-1 that I received? and How do I import or enter my W-2?

@mcarde12