S-Corp Dividends

Forum|Forum|5 years ago
February 17, 2021
1 reply
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My cpa had me record some distributions in 2019 as taxable dividends because we were trying to remove some old c-corp retained earnings. I do not see those dividends on my K-1 for 2019 and there is still a balance in "taxable dividends" in 2020. Can I do a journal entry to clear out that account for 2019 and put it into my "owners capital"?

TurboTax Business Windows

M-MTax

Level 15

For a balance sheet entry?

lKgarcia2020Author

Level 2

yes.

gloriah5200

Level 10

One last question for my balance sheet which relates to owners capital. The owners capital on my balance sheet in 2020 was an entry made in 2019 for an adjustment of my 2008 c-corp. (it was c-corp earnings that taxes were paid on in 2008). I have closed out my distributions and the taxable dividends to the owners capital. Is there an issue when deductions taken from owners capital is more than the salaries paid to owners?

If it continued to happen each year, it would look like disquised wages trying to save paying employment taxes on them and could draw IRS attention and cause them to want to "recharacterize them" as wages.

You need to have notes on it in the annual minutes of the corporation and documentation, in case IRS sends you an "inquiry" correspondence.

Generally, C Corporations pay dividends, not S Corporations.