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BK-CPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 933
Experience:  Owner of a CPA firm
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I have a client that had 30K in s net income from s 1120 S.

Customer Question

I have a client that had 30K in his net income from his 1120 S for 2015. I want to make a distribution of cash so as not to pay tax on the whole 30K. How do I do this?
JA: Thanks. Can you give me any more details about your issue?
Customer: An 1120 S has net income at the end of 2015 of $30,660.22. They want to take a dividend here in 2016 that will be paid out in 2016 and show the dividend on the 1120 S for 2015.
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Submitted: 1 year ago.
Category: Tax
Expert:  BK-CPA replied 1 year ago.

Hello and thank you for your question.

Taking a distribution is something that can only increase a shareholder's tax liability. Normally, distributions from a s-corp are not taxable to shareholders because they don't exceed the shareholder's basis in the s-corp. If a shareholder receives a distribution in excess of his/her basis in the s-corp, then the shareholder recognizes taxable gain.

Shareholders of s-corporations recognize the income of the s-corp regardless of whether or not it is distributed. This income recognition increases the shareholders' basis in the s-corp. That is why shareholders are then free to take distributions without further tax consequence to the extent of their basis in the s-corp.

A distribution taken in 2016 would also be reported on the 2016 Form 1120S and Schedule K-1's, not on the 2015 forms.