This year I am attempting to file our corporate taxes with Turbo Tax for business. In looking at my expenses, I noticed that the accountant who did last year's taxes, listed the payment for the IRS tax due as a disbursement to the shareholders (my husband and I own 100%), I thought the company would pay any taxes due (Fed and State) and my husband and I would pay our own personal taxes including any disbursements).
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I think your accountant confused you with his accounting.
An S-Corp is a "pass through" entity, meaning that all income and expenses "pass through" the S-Corp to the shareholders. This is irrespective of any cash actually changing hands. An S-Corp does not pay income taxes on its own because the S-Corp, for income tax purposes, has no income. It's all been distributed to shareholders via Schedule K-1. The shareholders then enter the information off their Schedule K-1's in their own income tax returns.
Accordingly, cash passed back to the shareholders that's not in "paycheck" form is not taxable income to the shareholders; it's a reduction of each shareholder's equity on the books of the S-Corp and a reduction in shareholders' basis in their investment of the S-Corp on the books of the shareholders.
I assume your accountant did your personal income tax returns as well as the S-Corp's, and included the S-Corp's income on your Form(s) 1040. Sounds to me like the accountant also prepared the checks to the IRS for your personal income tax return(s), (if that's the payee name on the checks), and took that cash out of the S-Corp, accounting for that cash as a "distribution to shareholders."
Tom Young
I think your accountant confused you with his accounting.
An S-Corp is a "pass through" entity, meaning that all income and expenses "pass through" the S-Corp to the shareholders. This is irrespective of any cash actually changing hands. An S-Corp does not pay income taxes on its own because the S-Corp, for income tax purposes, has no income. It's all been distributed to shareholders via Schedule K-1. The shareholders then enter the information off their Schedule K-1's in their own income tax returns.
Accordingly, cash passed back to the shareholders that's not in "paycheck" form is not taxable income to the shareholders; it's a reduction of each shareholder's equity on the books of the S-Corp and a reduction in shareholders' basis in their investment of the S-Corp on the books of the shareholders.
I assume your accountant did your personal income tax returns as well as the S-Corp's, and included the S-Corp's income on your Form(s) 1040. Sounds to me like the accountant also prepared the checks to the IRS for your personal income tax return(s), (if that's the payee name on the checks), and took that cash out of the S-Corp, accounting for that cash as a "distribution to shareholders."
Tom Young
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