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

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I own an S-Corp. I...
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: 9 years ago.Category: Tax
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Answered in 8 minutes by:
8/4/2008
Tax Professional: Marvin,EA, Enrolled Agent replied 9 years ago
Marvin,EA
Marvin,EA, Enrolled Agent
Category: Tax
Satisfied Customers: 1,672
Experience: Enrolled to Represent Taxpayers Before The IRS
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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?

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Customer reply replied 9 years ago
Reply to Marvin,EA's Post: Second (tax) year for the S-Corp. Filed in 2006 as an S-Corp.

tim
Tax Professional: Marvin,EA, Enrolled Agent replied 9 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.

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Customer reply replied 9 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
Tax Professional: Marvin,EA, Enrolled Agent replied 9 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
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Marvin,EA
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