S-Corp Distribution and 1099-DIV

[nj_don]

I am a single member LLC that for tax purposes is filing as an S-Corp. I paid myself a salary but also took a distribution at year end. I do not see where in TurboTax for Business I would enter this? There is a dividend section under Income but I would think that section is for any dividends paid TO the s-corp.   Shouldn’t it be an expense to the s-corp?

Also, Will TurboTax generate the 1099-DIV for this distribution? 

[ChristinaS · Accepted solution]

Distributions aren't generally income to you as the shareholder, and they are not deducted as an expense (just like dividends aren't deductible). Since you are taxed as an SCorp, you pay income tax on the net income of the business whether you take the money out or not. You are not taxed for actually taking the money.

Income distributed to you via Form k1 increases your basis. Distributions decrease that basis. You are personally only taxed when you take money out beyond your basis (investment, net income), which isn't that common.

To indicate that you have received a distribution:

• Go to Business Info
• Shareholder Information tab
• Click Done Entering Shareholders from summary screen
• "Yes" the corporation made distributions to shareholders
• Put the total amount on the next screen
• This will carry to your K1, Box 16D  items affecting shareholder basis

[nj_don]

@TurboTaxChristinaS  - Thanx for the prompt reply!

[ChristinaS]

You're welcome. Thank you for your appreciation!

[nj_don]

Have a follow-up question that hopefully can be answered!  I did enter the distribution amount and generated the k1 but notice that the K1 does not indicate this as a dividend payment so on my personal taxes it is being summed together with my regular income which would be a higher tax rate.  How does one correct this so the K1 reflects the ‘dividend’ payment?

[ChristinaS]

You don't get a dividend from an Scorp. Your income is taxed at normal rates, not dividend rates. Only C corps pay dividends.

[nj_don]

So is there any benefit of taking everything as salary vs distribution?

[ChristinaS]

Distributions don't impact your taxes. You pay youself a reasonable salary (W2), and the balance is passed through as shareholder income. Both are ordinary income, but the former has payroll tax. You wear two hats with an Scorp- employee and owner. As employee, you need to be on payroll.
You are not permitted to not pay yourself a reasonable salary. This is another topic altogether. Please google "reasonable compensation Scorp"- you will find a lot of information.

[nj_don]

I fully understand the need to pay a reasonable salary and was really thinking out loud here.  If the salary portion of compensation is above the SS tax threshold then it's becomes a tougher decision in terms of whether to go s-corp.

[ChristinaS]

well, its certainly worth it if you have income high enough to "strategize". You can probably pay less than SS threshold as a reasonable salary. Obviously, without Scorp you have no options like that.

[nj_don]

Yes, valid point 🙂

[shellytran1]

Thank you for all your inputs. Please help me clarify if im understanding taxing on the shareholder distribution portion correctly. 

If i have an Scorp and say it makes $100 in income. 

I then pay myself in W2 $60

with the remaining $40 in profit i want to do $20 in shareholder distribution. 

When I go over to my personal income tax , will i be paying tax on $60W2 and K1 $20? 

Or, will i have to pay personal in come tax on $60 W2  + $40 even if im only distributing $20 to myself? 

I hear the shareholder distribution is not taxed? or is it just not taxed at the Scorp level ? 

It seems that once i entered the $40 net income from the scorp K1 into my personal tax, the entire $40 combined with any W2 amount is taxed, not just tax on $20 in shareholder distribution. 

If, indeed, the total net profit , all of $40, is taxed at the personal level, and i only distribute $20 this year. In later year when i distribute the rest it would not be taxed? 

I hope my example is not confusing. Any help you can provide is greatly appreciated. 

[Critter-3]

will i have to pay personal in come tax on $60 W2  + $40 even if im only distributing $20 to myself?    YES ... all profits are reported in the year they are earned even if you don't distribute them to the shareholder ... that is the way "pass thru" entities work.

I hear the shareholder distribution is not taxed?  You can take "tax free"  distributions anytime you want since you have already paid taxes on them in the year you had the profit. 

or is it just not taxed at the Scorp level ?   S-corps don't pay income taxes ... the profits are passed thru to the personal return where they are taxed. 

If, indeed, the total net profit , all of $40, is taxed at the personal level, and i only distribute $20 this year. In later year when i distribute the rest it would not be taxed?   Now you are getting the picture. In your bookkeeping you should track any "seed" money you put into the company since this is NOT income to the company and you can repay yourself without income tax issues at any time. And keep track of all non wage distributions again so you don't accidentally count them as expense deductions.  Seek local professional help to get your books in order and/or get a good bookkeeping program to keep your records solid. 

[jep356]

We withdrew money from our S-Corp this year as undistributed income, money that had been retained from previous years for which we had already been taxed.  Where do we input this amount?  Where does Turbo Tax pick up this transaction?  

[LenaH]

The money withdrew would be considered a shareholder distribution. Distributions reduce equity and would be reported on the Balance Sheet. In other words, distributions reduce the amount of retained earnings held by the company. 

To report shareholder distributions for your S-Corp, you would enter the total distributions under Business Info >> Member/Partner Information. The distributions entered here will flow to the Balance Sheet and the Schedule K-1. 

@jep356