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As an S corporation one person stockholder I show an annual

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business income on the 1120S...
As an S corporation one person stockholder I show an annual business income on the 1120S which transfers as an income on my personal 1040 and also gets added to the company accumulated adjustment account Schedule M-2 Form 1120S. If I make a distribution from the Accumulated Adjustment Account to myself as the stockholder, that amount goes back to my 1040 as an income. This means I am paying tax twice for business income. I am having difficulty understanding this.
Submitted: 6 years ago.Category: Tax
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Answered in 7 minutes by:
3/1/2011
Tax Professional: CGCPA, CPA replied 6 years ago
CGCPA
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Welcome to Just Answer. I am here to help you resolve your tax and finance concerns. Please feel free to ask anytime you need extra help.

 

You almost have it. The double tax situation you are concerned about does not exist. If there is a profit that is not taken it does get taxed to you in the year recognized whether or not you take it. However, if in some future period you do withdraw it, it is not taxed again. Distributions are not taxable, profits are.

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Customer reply replied 6 years ago

I like your response. However, it appears that if I take a distribution it gets recorded on schedule K-1 block 16 with the current income in block 1 which means they get combined as income on the 1040?? Are you saying I do not need to record the distribution on the K-1??

 

Many thanks for your help.

Tax Professional: CGCPA, CPA replied 6 years ago
You do not need to reflect the distribution on Schedule K or K-1. It is a Schedule M item only.
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