The first 10 years I was using S-Corp for "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 $2000 because I did not do anything in the S Corp. I do not want to take a salary on $2000 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.
A lot going on here and I will provide some commentary and guidance:
Yes filed returns every year and have been using a Tax professional since Day 1 in 2005. I just don't get clear answers when I ask the questions so try to ask it to other people.
So as long as my basis is above $900,000 (yes I have basis schedule) then a $900,000 distribution in 2019 without a salary is still a huge red flag?
Every time you get a distribution in a year (even if you worked $0 hours in the S-Corp) you have to take a salary to be able to take a distribution? That doesn't seem right. For the years that I did have earnings I was taking a reasonable salary...there were other years where I would make $15000 but didn't take as salary or distribution so it just sat in account and increased basis.
What would happen if I would just close the S-Corp down - would that be easier to just get all the money out?
I guess my point is how do you get the money out on S-Corp that has been sitting in there for years doing nothing.
A couple of follow-up points:
Thanks for your questions.
My point of saying "Close S-Corp" is because of this situation. A lot of retained earnings that I struggle to feel comfortable taking out.
I sold an asset out of this business a few years ago and basically nothing left except cash/investment assets. The last couple of years I haven't done much with it so was thinking of closing and just starting a new S-Corp when I am ready for another venture. Doing investments in S-Corp is challenging at times and since my wife and I control 100% of it then it would be easier to just have money in our personal accounts.
When you say K1 is not generating income to justify a big distribution - that is my challenge - how do I ever get that money out if the K1 NEVER generates income again? Sounds like I would have to close S-Corp?
Just take the distributions over time instead of just one large distribution. Hopefully keeps you under the radar.