1. Home
  2. Taxes General Forum
  3. Question: S-Corp / K-1 strategies

Question: S-Corp / K-1 strategies

I'm a 100% shareholder of an S-Corp, and the sole employee/officer.

Scenario: Say my company makes $100K in a year. Officer's compensation is $90K, expenses $8K, so $2K remaining of the income for that year. At start of year there was $3K in company checking account, so at end of year there is $5K.

Now, $2K appears as ordinary income on 1120S line 21 and schedule K-1 box

  1. K-1 goes over to personal taxes (Schedule E), where I am taxed on it, even though I have not received this K. If next year I decide to pay myself this K, I am taxed a 2nd time.

Moral: use up every dollar of business income every year. Business bank account balance at end of year should match amount at beginning of year. Use up ALL income for the year. If any is left over, take the money (in my example, $2K) as a distribution since you'll be taxed on it anyway. Adjust K-1 to report this distribution in box 16 (as letter D).

Am I understanding this right? Please let me know if I'm missing anything.

Thanks in advance.

##-----------------------------------------------## Newsgroup Access Courtesy

formatting link
Tax and Accounting Software ForumsWeb and RSS access to your favorite newsgroup - misc.taxes.moderated - 11402 messages and counting!##-----------------------------------------------##

Reply to
SCorpGuy
Loading thread data ...

"SCorpGuy" wrote

Actually you aren't taxed - again - if you take it as a distribution of profit.

Profit distributions from an S Corporation are not taxed as long as you have basis.

Distributions are not taxed.

The income and profits are.

Not as right as you should.

You're missing the fact that "S" profits are taxed - once - at the shareholder level regardless of if those profits have been paid to the shareholders. Often times the profits can't be paid out due to cash restrictions.

Distributions from the "S" are not income to the shareholders as long as they have basis.

Basis is the amount of money each shareholder puts into the business (the cost of their stock, etc), plus profits and incomes, less losses, less distributions.

Talk to your tax professional about all this.

Reply to
Paul Thomas, CPA

You're missing the whole point of S corporations, as Paul has pointed out. S corporation income is taxed once, at the stockholder level. Not twice.

S corporations are complicated and not a do-it-yourself project unless you have a strong tax background or are willing to do a lot of self- education. You may be making other mistakes or missing other opportunities. You need to consult a qualified tax professional.

Katie in San Diego

Reply to
Katie

S corp income is only taxed once, unless it has C corp earnings and profits (retained earnings). Be careful about how your state deals with it. State treatment doesn't always follow federal treatment.

You may want to consult your own CPA.

___________________________________

-----> real address on hobokeni or hobokenx

Reply to
Benjamin Yazersky CPA

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.