How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Marvin,EA Your Own Question
Marvin,EA
Marvin,EA, Enrolled Agent
Category: Tax
Satisfied Customers: 1672
Experience:  Enrolled to Represent Taxpayers Before The IRS
9313471
Type Your Tax Question Here...
Marvin,EA is online now
A new question is answered every 9 seconds

I own an S-Corp. I have taken a salary of $60k and owner ...

Customer Question

I own an S-Corp. I have taken a salary of $60k and owner draws of $30k ($7500 per quarter). I was told that I would avoid paying self-employment taxes on the $30k. I am not sure what type of income it is. Is it dividend income, return of capital???
Submitted: 8 years ago.
Category: Tax
Expert:  Marvin,EA replied 8 years ago.

Hello and thank you for using Just Answer. Is this your first year owing a S-Corp? Have you ever file a S-Corp tax return?

Customer: replied 8 years ago.
Reply to Marvin,EA's Post: Second (tax) year for the S-Corp. Filed in 2006 as an S-Corp.

tim
Expert:  Marvin,EA replied 8 years ago.

Tax treatment of distributions are treated as follows:

1) a nontaxable return of capital to the extent of the shareholder's remining stock basis is not taxable

2) if you have a zero basis in the S-Corp. distributions are taxable income and is not subject to self-employment tax.

The $30,000 is not subject to self-employment tax and will be reported as income on your K1.

Customer: replied 8 years ago.
Reply to Marvin,EA's Post: Are you saying that there is absolutely "no way" the $30k could be reported as DIVIDEND?

Tim
Expert:  Marvin,EA replied 8 years ago.
The $30,000 is dividend to you but not subject to capital gain tax rates. An S-Corp. is a pass-through entity and is subject to ordinary income tax rates