I own shares of a s corp and am paying back the value/debt of those shares over a time period. If a distribution of cash, do i owe income taxes if I still have debt?

Forum|Forum|2 months ago
May 9, 2026
1 reply
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I also get a bi-weekly salary from the s corp and the distribution of cash is in line with the same percentage basis of my share ownership.

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RachelW33

Alumni - Expert

It depends. You only owe income tax on distributions if the cash received is more than your cost basis in the company. If the cash distribution is greater than your basis, the excess is taxed as a capital gain, even if you still owe money on the loan used to purchase those shares. Paying back a loan for the shares doesn't immediately change your basis; your basis is generally increased by company profits and decreased by these cash distributions

Your bi-weekly salary is separate and is always subject to income and payroll taxes as ordinary income.

For more information, please see: IRS- S Corporation Stock and Debt Basis

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