topic CA LLC taxed as an S Corp, wondering tax implications for dividend distribution. Wondering how its taxed, lets say salary is 45,000 USD and 100,000 in dividend. in Get your taxes done using TurboTax

CA LLC taxed as an S Corp, wondering tax implications for dividend distribution. Wondering how its taxed, lets say salary is 45,000 USD and 100,000 in dividend.

luuinhaler — Tue, 10 Mar 2026 07:18:33 GMT

Would the 45,000 be the tax bracket of 45,000 or would it be taxed in the same bracket as if its combined 145,000 USD.

Re: CA LLC taxed as an S Corp, wondering tax implications for dividend distribution. Wondering how its taxed, lets say salary is 45,000 USD and 100,000 in dividend.

Anonymous_ — Tue, 20 Dec 2022 14:38:46 GMT

First of all, the IRS scrutinizes salaries for officers of S corporations closely and those salaries must be reasonable (and a $45,000 in salary based on $145,000 total does not sound like a reasonable salary)

Regardless, the corporation deducts your $45,000 salary on its tax return (1120-S) but your tax liability would be based on both your salary and the $100,000 in net income (i.e., it is combined).

@Rick19744

Re: CA LLC taxed as an S Corp, wondering tax implications for dividend distribution. Wondering how its taxed, lets say salary is 45,000 USD and 100,000 in dividend.

Mike9241 — Tue, 20 Dec 2022 17:47:26 GMT

@luuinhaler the distribution is not taxed unless it exceeds your tax basis in the S-Corp.

Re: CA LLC taxed as an S Corp, wondering tax implications for dividend distribution. Wondering how its taxed, lets say salary is 45,000 USD and 100,000 in dividend.

Rick19744 — Tue, 20 Dec 2022 18:54:48 GMT

I agree with @Anonymous_ in that you need to consider tax guidance on what may be "reasonable" wages given your business model. This area is a facts and circumstances situation. If this is more along the lines of a consulting business or where your services are what drives the business, then I would also agree that the 45/100,000 wage and distribution ratio may not pass an IRS exam.

Additionally, your distributions will not be taxable as follows:

to the extent that your accumulated adjustments account (AAA) is positive
you have tax basis

Finally, you also need to be aware that the AAA cannot go negative as a result of distributions. So there can be instances where the distribution reflected Sch M-2 will not agree with what is reflected on your K-1.

There are many other nuances with S corporations, so you may want to meet with a tax professional to get an understanding of how everything flows sooner rather than later.

Re: CA LLC taxed as an S Corp, wondering tax implications for dividend distribution. Wondering how its taxed, lets say salary is 45,000 USD and 100,000 in dividend.

Critter-3 — Tue, 20 Dec 2022 20:35:51 GMT

An S-Corp doesn't pay dividends ... the shareholders have draws. On the K-1 the profits are passed thru to the sharesholders to be taxed on the personal return even if the profits are not distributed.

Only a C-Corp pays the stock holders dividends reported on a 1099-div.

Now as to the salary % ... if you have 10 employees it is possible that the business made quite alot on their labors and that can be passed thru to the shareholder and a $45K salary may be reasonable for the job you actually do for the company. However, if you are the only employee (W-2 issued) and you only took $45K when the business profited 100K it may look off if you are audited. What you should do is issue yourself a nice year end bonus on your paycheck and report it on the W-2.