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I am a 50% shareholder in a n s-corp. I also run the

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Hi, I am a...

Hi, I am a 50% shareholder in a n s-corp. I also run the business as pay myself via w-2. last year i also took $20k in owners draws. I am completing my personal taxes now and am wondering if i can list these draws a qualified dividends?

Accountant's Assistant: The Accountant will know how to help. Is there anything else important you think the Accountant should know?

I dont think so

Submitted: 21 days ago.Category: Tax
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4/3/2018
Tax Professional: PDtax, Certified Public Accountant (CPA) replied 21 days ago
PDtax
PDtax, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 5,011
Experience: 35 years tax experience, including four years at a Big 4 firm.
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Customer reply replied 21 days ago
Great!
Tax Professional: PDtax, Certified Public Accountant (CPA) replied 21 days ago

Since you pay tax on your share of S corp income anyway, s corps typically don't pay dividends. You pay tax on the s corp income, and your distributions are payments from that taxed income.

Dividends are a problem for s corps, and are generally avoided. dividends can be paid from an s corp, but only if it was a previous C corp.

Let's say you received a $30,000 wage from your S, and your share of its income was $33000. And you took distributions of $20k. You pay tax on $30k in wages, and $33K in S profits. The $20K paid as draws is a distribution from the $33k income. There is no additional tax on the $20K.

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Customer reply replied 21 days ago
That is very helpful. It has never been explained like that to me before.I understand your point, but I have already taken the draws. So, when completing the 1120-s for the business, on the schedule k for lines 5 a and b (ordinary and qualified dividends), am I able to put the $20k draw as qualified?
Tax Professional: PDtax, Certified Public Accountant (CPA) replied 21 days ago

The draws are not taxable. Period.
Do NOT try to classify them as dividends. As long as you did not withdraw more than your investment, the draws are NOT taxed.

I can offer a phone conference to discuss further if you like. See my offer.

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