In addition to @Anonymous_ comment and advice, keep the following in mind as well:
- As noted by @Anonymous_, the S corporation is a pass-through entity and as such does not pay tax on the earnings. These earnings flow out to the shareholder(s) who then pay the appropriate federal and state tax.
- Distributions are certainly a large component in the S corp environment and are used to provide cash for shareholder(s) to pay their tax and also provide a return on their investment.
- Distributions are a high focus area with the IRS. In particular where there are significant distributions and no "reasonable" salary. Based on your initial facts, it appears that you are paying salaries. The key is, are those salaries reasonable; which is always a question of facts in each situation.
- Distributions will be tax-free as long as the shareholder has sufficient basis in their S corp investment. These rules become a little more difficult if the S corp was a previous C corporation. Additionally, you need to make sure you understand the relationship between AAA (accumulated adjustment account) and distributions. So while a shareholder may have basis to take the distributions, distributions cannot make the AAA negative.
- If you aren't already, make sure you are maintaining your basis in the S corp investment.
- It appears you are having a successful year. It may be worthwhile to spend a few $$ with a tax professional to make sure you handle everything correctly.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
