you pay taxes on your S-Corp W-2 wages + taxes on any remaining income reported on the k-1. it doesn't matter that you didn't distribute the remaining income. you're taxed on it. that's how an S-Corp works. you may want to consult a pro to get educated on S-Corp operations and taxation. Also, the pro can provide guidance on the salary you're taking. In an S corp engaged in activities where the income is largely due to the efforts/expertise of the shareholder, the IRS likes to see a substantial portion of the income going out as a salary. penalties for failure to pay an adequate salary can be substantial.
