.tell me the difference between "salary" and "distributions"? as it relates to an S-Corp
Salary is "earned income". You earn it by doing out and physically "doing something" on a recurring basis to "earn" it. Salary is reported to the person who earned it (the employee) on a W-2. Salary is required to have taxes withheld from it, and the employer (the S-Corp) must pay a "match" on the social security and medicare tax withheld from the employee's W-2 pay. There are other taxes on that salary the employer may be required to pay also - such as the UC Tax (Unemployment Compensation Tax) as but one example.
Distributions are paid to the owner of the S-Corp. The IRS requires all S-Corp owner's to take an RMD (Required Minimum Distribution) which is taxed - but the RMD is not subject to the additional self-employment tax paid by the employer on W-2 income. The owner pays all taxes on the RMD. The RMD is reported on the K-1 which the S-Corp is required to issue to all owners. What specific box or boxes on the K-1 that income is reported in, depends on the type of income being distributed to the owner(s). The three basic types of income to be distributed could be ordinary income, rental income, and investment income. Overall there are about 12 boxes for all the different types of income that could be distributed to owner's of an S-Corp.
