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Stephen G.
Stephen G., Sr Financial Expert
Category: Finance
Satisfied Customers: 7114
Experience:  Extensive Experience with Tax, Financial & Estate Issues
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I have and s corporation i use xero as my accounting system

Customer Question

I have and s corporation i use xero as my accounting system i just wanted to know where should i classify the distributions that i will take from my business profits , will this be classified as an owners draw or where ? Please advise !!!!!!!!
Submitted: 1 year ago.
Category: Finance
Expert:  Stephen G. replied 1 year ago.

You don't have "draw" accounts in an "S-Corp".

First you should be taking any profits out by establishing a reasonable salary, paying the corporate payroll taxes, employee withholdings of Social Security & Medicare Taxes, income tax & any state income taxes; Then you would take any remaining profit distributions as dividends on your S-Corp Stock which are not taxable as they would be part of your profits which are taxable via your K-1 whether you withdraw them or not.

Customer: replied 1 year ago.
Got it , thanks a lot so i need to open an account for dividens , this will be an equity account right ?
Expert:  Stephen G. replied 1 year ago.

Yes, it would be an Equity Account; and be grouped with your AAA Account when you do any financial statements or your 1120-S. If you look at the 1120-S Schedule M-2, line 7 you'll see that the Profit Distributions are reflected there. The Distributions are also reflected on Schedule K, line 16(d). Actually they could be named "Profit Distributions" or "S-Corp Profit Distributions" whichever you prefer. There's no 1099 reporting of these amounts as they represent whatever amount of the Current Year's Profit you have distributed during the year. Actual "Dividends" in the context of the S-Corp are distributions of Accumulated Earnings & Profits for any period of operation prior to electing S-Corp status, if the Corporation was in existence before it elected to be an S-Corp.