When can I take distribution from s corp

[wanghaojie630]

Hello, does the distribution has to be taken after fiscal year end or I can take part of distribution mid year? Knowing that I’ll make more later? Also, can I take two distribution per year? I pay a reasonable salary but I have a big income coming mid year and the money just sitting in my business. I’d rather take the distribution and invest in stock right now

[Anonymous_ · Accepted solution]

The tax laws (Internal Revenue Code and Treasury Regulations) do not impose any restrictions on how often you can take distributions from your S corporation.

Note that total distributions will appear on your K-1 (1120-S) and will serve to decrease your basis in the stock of the corporation.

[wanghaojie630]

Thank you. For distribution, can I just do a bank transfer or check? I assume I shouldn’t use my payroll service because they will automatically take fica tax 

[Anonymous_]

Yes, you can do so and definitely do not use your payroll service.

[Mike9241]

the one thing you have to be careful of is that you have enough basis so the distribution is not taxable. 

you start out with your tax basis before the distribution. if it is negative the distribution will be fully taxable - if you held the stock for more than 1 year as a long-term capital gain.  if you have a positive basis the distribution reduces this $ for $. if you still have a positive basis the distribution is tax-free. if it's negative the distribution is taxable to the extent your tax basis is negative. the taxable portion, if any, does not reduce your basis so you would likely have a zero basis.