How is a large $ corporate draw classified? As a dividend? And how is it taxed?
You'll need to sign in or create an account to connect with an expert.
I'm assuming the question you're asking is how is a distribution from an S corporation handled?
Assume for sake of argument, your basis in the S corp stock is $10,000. You take a distribution of $5,000. That is treated as non-taxable. However, final determination of this is made at the end of the year.
As of the year-end, you take the beginning balance of the stock basis, add to it, the items of income, separately stated items etc.
Subtract any losses and separately stated items.
Then subtract distributions.
If the basis in stock is zero or above, then the distribution is tax free. (stock basis can never be negative)
If however, an amount of the distribution exceeds the basis in stock, then the excess is taxed as a capital gain.
Thus if beginning basis in stock is $10,000, and items of income, expenses, losses, separately stated items reduces the basis to say $4,000 and you take a $5,000 distribution. Your basis in stock is zero and $1,000 is a capital gain.
Here is a more comprehensive example
https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-stock-and-debt-basis
Still have questions?
Make a postAsk questions and learn more about your taxes and finances.
taxologist
Level 1
gannon-johnc-gma
New Member
vgbs
Level 2
kathryn91
Level 2
Lcarpenter
Returning Member
Did the information on this page answer your question?
You have clicked a link to a site outside of the TurboTax Community. By clicking "Continue", you will leave the Community and be taken to that site instead.