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Lane
Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 10122
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Can one shareholder take 100% profit of a s corp and have it

Customer Question

can one shareholder take 100% profit of a s corp and have it on the k1?
Submitted: 1 year ago.
Category: Finance
Expert:  Lane replied 1 year ago.

Hi,

...

Yes, as long as that profit has the required reasonable salary deducted from it.

...

The profit (and the salary) will be taxed, regardless of whether the profits are physically distributed or not, however, as the S-Corp is a passthrough

Expert:  Lane replied 1 year ago.

I'm assuming of course that there IS only one shareholder

Expert:  Lane replied 1 year ago.

Questions?

Customer: replied 1 year ago.
its a S coprp and it 2 shareholder but only one shareholder wane take on income
Expert:  Lane replied 1 year ago.

Yes, they can agree that only one will take the income, but the K-1 profits have to be taxed based on ownership% ... this is a fundamental part of corporate structure.

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AND this would mean that the owner that did take a distribution would be lowering his/her tax basis

Customer: replied 1 year ago.
how do i make it on the k1
Expert:  Lane replied 1 year ago.

50/50 if they each own 50% ownership

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Agaon profits must be allocated and taxed based on ownership percentage (no of shares owned)

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Then if only one person takes an actual distribution of money (something there should be shareholder agreement to support) that shareholder will be lowering their basis by the amount of the distribution,

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which will make any future gain on sale higher for this person AND have to potential for not allowing losses in the future (losses can only betaken to the extent of basis in the S-Corp)

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Lane

Customer: replied 1 year ago.
h ewane to have 100% of the income on the
K1
Expert:  Lane replied 1 year ago.

That's illegal

Expert:  Lane replied 1 year ago.

S-Corp owners must be taxed in proportion to their ownership

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Distributions and taxable profit are two different things

Customer: replied 1 year ago.
its no way one shareholder will take 100%v of the
profat
Expert:  Lane replied 1 year ago.

They can take it (physically) if there's a shareholder agreement.

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But "distributive share of profits" must follow the corporate tax rules

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Profits are TAXED based on % of ownership

Expert:  Lane replied 1 year ago.

"Distributive Share" is a tax term ... has nothing to do with what $ are actually distributed

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BUT, again, this is something that both shareholders must agree to, or it amounts to theft.

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Then if they DO agree, there will be tax benefits that come to the shareholder who was taxed on money not received later (lower gain on sale because his tax basis will be higher - ability to take a tax deduction for loss when the other shareholder may not because he reduced his basis when taking the distribution)

Customer: replied 1 year ago.
on line 1 on the k1 will be only 50% and line 15 will be 100%?
Expert:  Lane replied 1 year ago.

line 15 is AMT items

Customer: replied 1 year ago.
what line?
Expert:  Lane replied 1 year ago.

S corporation shareholder distributions are payments of corporate arnings that have previously been reported as income to the shareholders. The total distributions (except for dividends) -- including cash -- made to each shareholder and reported on line 17c of Schedule K should be reported on line 16d of Form 1120S, U.S. Income Tax Return for an S Corporation.

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Again doesn't affect tax, just the basis

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