@Mike9241 Thank you for providing your valuable insights. As this is my first year filing 1120S, I want to ensure that I adhere to the guidelines appropriately to avoid any potential issues by year-end. These distributions are for 2023.
Regarding the distribution, I have another query: Is it permissible for owners to take distributions that exceed their basis? To illustrate, please refer to the example below:
Scenario #1
Basis Beginning of Year (BOY): $0K
Ordinary Income after Salary: $50K
Basis Now: $50K
Distributions: $65K
Basis Now: $0K
Excess Distributions: $15K
179 Deduction: $15K
Basis End of Year: $0K
Based on these figures, I understand that the 179 deduction will be carried forward to the subsequent year since my basis is $0. However, I am uncertain about where to report the Excess Distributions and Loan Repayments of $15K? Should they be considered as Long-Term Capital Gains, given that I have held stock in the company for 5+ years?
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Additionally, in Scenario #2:
Basis BOY: $0K
Ordinary Income after Salary: $50K
Basis Now: $50K
Distributions: $0K
Basis Now: $50K
179 Deductions: $15K
Basis End of Year: $35K
Since there have been no distributions in this scenario, I am curious if this could potentially lead to any complications, considering that S corporations do not pay taxes on retained earnings.
