as to disproportionate distributions PLR 201236003 (PLR is private letter ruling which van not be cited by others)
The IRS looked to the underlying stock agreements, and finding that they conferred on all the shareholders equal rights to distributions and liquidation proceeds, held that despite having made several disproportionate distributions, the S corporation did not have a second class of stock, and thus did not terminate its S election, provided it make the necessary corrective distributions.
So in summary, a single distribution that is not made in accordance with shareholders’ ownership interests is not a cataclysmic event. However, the distributions should be corrected as soon as possible, and I would caution you to not make a habit of making disproportionate distributions, or you may well run afoul of Section 1361.
I also question whether payment of personal expenses should be shown as non-deductible expenses or distributions. you may be creating problems for yourselves should you be audited. it is much better to take distributions and put the money in a personal account to pay personal expenses.
how to take distributions. write a check from the S-corp to yourselves personally. preferably 1 to each of you in same amount. in the area for of the check for description write "distribution" (not really necessary). Really no different than a payroll check except you get no deduction for this and there ares no payroll taxes taken out. deposit check into a personal account like the one used to receive your payroll checks. from there you write checks to pay personal expenses.
since it seems that $40K has not been reduce by the nondeductible expenses then your taxable income from the S-Corp is the $40K+ your salaries. 17V is for purposes of 199A/ QBI
your K-1s are entered in your 1040 exactly as is
should be amounts on these lines in part III - each 1/2 of the book total
1 (increases basis)
16C (no effect on your taxable income but does reduce basis) this is your personal expenses which might more properly be reflected on 16D as distributions. same effect as 16C
17V should have 2 or 3 numbers - no affect on basis. or taxable income from the S-Corp. The info is used to calculate any QBI/199A deduction form 8995
a) line 1 profit
b) wages paid including yours
c) and if you have depreciable property the unadjusted basis immediately after acquisition (UBIA)
better hurry. unless you are in California a properly extended calendar year S-Corp return for 2022 is due 9/15/2023
file late and there is a penalty of about $400/month for ech month or fraction thereof that it is late.
I would also suggest talking to a tax pro for guidance. things like a retirement plan. paying health insurance through the s-corp, (it must be done a certain way) even an FSA/HSA for you and your employees
