Discussion:Defer S-Corp Distribution
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Discussion Forum Index --> Consumer Questions --> Defer S-Corp Distribution
| 23 December 2008 | |
| I have an S-Corp and have a question on Deferring Distribution to a later year. Can it be done to reduce current year personal tax liability as I expect to see a slow down next year ? | |
| 23 December 2008 | |
| This question has been moved from the Articles section, where it was originally posted today. | |
| December 23, 2008 | |
| Distributions have nothing to do with taxable income, so it won't change a thing. You pay tax on the profits regardless of when or how or how much is actually paid over to you. | |
| December 26, 2008 | |
| If your net income is $100,000 on your 1120S, this is equally divided between all shareholders to report on your 1040 (Schedule E). This income increases your basis in the S-Corp. You don't need to take a distribution, which becomes "tax-free" when you do take it.
Say your portion of net income is $50,000 -- if you had a distribution equaling $25,000 (your portion), you still need to report that $50K as income. Your basis just doesn't increase $50K because of your $25K distribution. If you want to reduce your personal tax liability, there are many legal ways. Consider selling taxable investments (stocks, bonds, etc.) that are at a loss, making additional charitable contributions, or even pre-paying your mortgage. You can also contribute to an IRA. | |
| 27 December 2008 | |
| Your question betrays a lack of understanding of the fundamentals of S corporation taxation, and suggests that you need to find a competent tax adviser as soon as possible. S corporations are complex and are not do-it-yourself projects unless one has a fairly strong background in tax law, which you do not appear to possess.
Please consult a local CPA or enrolled agent who specializes in small business tax planning and compliance as soon as you can. | |
| 29 December 2008 | |
| S Corp taxation is both complex and arcane. Katie J is right...find a tax expert who deals with S Corps on a routine basis. This really is not the time for DIY. | |
Newintaxacctg (talk|edits) said: | 25 January 2009 |
| Please let me know whether my understanding is correct: In a single owner S Corp, 100% of net income of S Corp is taxable to the owner's 1040 (line 17). If he did not get any distribution during the year, his basis in the S Corp increases. How about if he get distribution, what is the acctg entry, debit shareholder's equity? | |
| 26 January 2009 | |
| You need to prepare an 1120S, which issues a K-1 to the owner, which the owner reports on Sch E Part II, which flows to line 17. So, indirectly, you're correct.
I usually have an account called "distributions", a contra-equity account, that closes to shareholder's equity ("undistributed earnings"). It's mainly for tracking purposes, though, so you could debit the equity account directly as well. | |
| January 26, 2009 | |
| Some of us use a Note Payable-S/H account. Or you can just post to AAA if there's only one S/H. | |
