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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29799
Experience:  Taxes, Immigration, Labor Relations
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I am a partner in an S Corp. business. There has been some

Customer Question

I am a partner in an S Corp. business. There has been some confusion regarding how year end profits are handled my understanding is that, although, the tax burden is on the individual how the individual is impacted by posted profits. Out experience has been that we are typically handed a tax bill based on profit that we have not benefitted. Is it correct to think that dividends on profits should be dispersed quarterly to offset year end tax burden?
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

There is NO dividends in case of S-corporation.
S-corporations are so-called "pass through" entities - means -

- S-corporation files income tax return - reports income and deductions - and calculate taxable income

- however because S-corporation doesn't pay income tax - that taxable income is passed to shareholders.

- each shareholder receive schedule K1 that reports his/her share of taxable income - and use that information when individual tax return is prepared.

- it doesn't matter if taxable income is distributed or not - that is between shareholders how they want to use the profit.

- in additional shareholders normally are also employees of that S-corporation. As employees - they receive wages - which is reported as taxable income on W2

- for S-corporation - wages are usually deductible expenses on form 1120S.

Expert:  Lev replied 1 year ago.

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