I have set up my company 3 years ago, but have not yet had any company distributions from my business. What is the right timing, amount, process to make a valid distribution from my s corp? How do I know how much to distribute? I would like to make the transaction that IRS and State would not see as a red flag. BTW, I do have the right salary/compensation for myself already and I keep increasing it each year according to the inflation trends and the salary market research. Thanks!
Most of the time when you are taking a distribution from the company you are not affecting the tax calculation to you. Your distributions are more of a reduction of your equity in the business and your income on the amount if determined in the year earned. Two of the major issues related to distributions is that you do not want to distribute more from the company than you have equity in it and if there is more than one owner you will want the Distributions to be proportional to the ownership.
Since you have been paying yourself resonable compensation and it appears that it is well documented, there is no issue with taking distributions that should raise a red flag with the IRS or State taxing authorities.
As far as timing and amount, that would depend upon your personal and business needs. Things such as cash flow and future business needs should be considered.
A distribution is normally a tax-free reduction of the shareholder's basis in the S Corp. If the distribution(s) exceed your basis, then such excess would be considered a capital gain.
Here is a link to an IRS article that discusses S Corp stock and debt basis:
https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-stock-and-debt-basis