Tax on dissolved NYS S-Corp business cash?

[Anonymous]

When dissolving a NYS LLC taxed as an S-Corp, besides filing a final return and making sure shareholder pays normal income tax on the amount on final K-1 with their next 1040 return, are there any tax implications for the actual cash left in the business bank account?

Or it literally just goes to the shareholders personal account and no further tax at all is paid and shareholder keeps it? Single shareholder in this case. No debt or people needing to be repaid by company, no outstanding taxes due.

[Critter · Accepted solution]

Whatever is still in the account after all the bills are paid can be distributed at will.  That is how the S-corp works ... it is a pass thru entity . 

[Anonymous]

Just like any other distribution would have been done during business being open? So not taxable to shareholder after the distribution? Wouldn't this run into the issue of IRS 60/40 "rule" if the final distribution of remaining cash is much larger than the payroll the shareholder gets?

[Critter]

You are mixing up income tax rules and accounting rules.  What you are distributing is considered "retained earnings" and has nothing to do with the income 60/40 rules. 

[Anonymous]

Ahh okay that makes sense. So it gets taxed to the shareholder as a capital gain since the distribution is for the sale of stock? I say sale of stock because isn't this what is going on with the dissolution? The shareholder returns all their stock in exchange for the remaining cash/assets.

[Critter]

Ok ... you were talking apples and oranges and now tossed in bananas as well   ... if you are selling your position in an investment then you will report the sale on the Sch D and/or form 4797 to report the gain or loss.   I highly recommend you seek local professional guidance with this complicated situation if you don't understand it fully  or  upgrade to the LIVE version for one on one guidance and review. 

[Anonymous]

Haha, I definitely plan on it, wanted to have a basic understanding first of the possible scenarios. Definitely not an "investment" in the company as sole shareholder started the company and built it.

[Critter]

As the only shareholder of a corporation, that is not publically sold on the stock market, there are rules to be followed ... seek consultation with a local pro before you sell  to be educated as the penalties  of doing it wrong can be costly.