I am the sole owner of my s Corp. I want to roll the net income back into the business. I do pay myself a salary. How can I show on the K-1 that I didn’t take the profits

[Anonymous_ · Accepted solution]

How can I show on the K-1 that I didn’t take the profits?

You have to report the ordinary income from Schedule K-1 (1120-S) regardless of whether you took a distribution and regardless of what you do with the profits.

In other words, you are taxed on the net profit of the corporation despite the fact that you "roll the net income back into the business".

[priorityrecords]

Thank you!

[Critter-3]

If you do NOT pay yourself a reasonable wage as a sole owner of an S-Corp then you leave yourself wide open for an audit.   What you should be doing is paying yourself a wage and have it reported on a W-2 ( filing all the proper payroll tax reports timely) and then make a "loan" back to the business  for the retained earnings.  Seek help if you are not understanding the bookkeeping behind the theories. 

[priorityrecords]

Thank you. I do pay myself a salary, pay employer taxes and file the quarterly tax form and make monthly payments. 
Say there’s $27K I want to keep in the business account for unforeseen expenses, etc, I’m told I can roll it back into the business. How would I show that when I file my taxes?

[Anonymous_]

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@priorityrecords wrote:

Say there’s $27K I want to keep in the business account for unforeseen expenses, etc, I’m told I can roll it back into the business. How would I show that when I file my taxes?

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How that would be reported is dependent upon exactly what you do with the $27k.

If you simply leave the money at a financial institution, you would not report it all on your tax return (1120-S) with the exception of a balance sheet entry (if you maintain a balance sheet).

If you spent the $27k on business property, then you would either report that cost as an expense or the asset would be capitalized and depreciated (which would appear on your return).

[Critter-3]

How things are reported on the corp return and how they are accounted for in the bookkeeping are not the same way.   If you filed the payroll paperwork  but never actually took a paycheck from the company then the deduction for the payroll expenses would be on the tax return however only the taxes paid on the payroll would be in the books along with a "loan from shareholder" for the unpaid wages.  Again getting educated in how to keep the books is a must.  

[priorityrecords]

Thank you. So, you’re saying if I put it in the savings or just leave it in my business checking account, I would include it on my balance sheet but not on the K-1. Do you know how I would categorize it on the K-1 or my 1120?

[Anonymous_]

On your K-1, it would be included on Line 1 as ordinary income.

On your balance sheet, debit (increase) cash and credit (increase) retained earnings.