Business Owner Pays Tax On S-Corporation Distribution

Рет қаралды 15,362

Күн бұрын

Business Owner Pays Tax On S-Corporation Distribution
Download FREE PDF: 7 Write Offs Every S-Corporation Business Owner MUST Know bit.ly/3DPw5UZ
Are you a business owner who operates as an S corporation? If so, you may be familiar with the concept of distribution taxes, which are additional taxes that S corp owners may have to pay on top of their regular income tax. In this video, we'll explore what distribution taxes are, why they exist, and how they can impact your bottom line.
First, let's define what we mean by distribution taxes. When an S corporation makes a profit, it can distribute that profit to its shareholders in the form of dividends. Unlike regular C corporations, which are taxed on their profits at the corporate level, S corporations are "pass-through" entities that don't pay federal income tax on their profits. Instead, the profits flow through to the shareholders, who report the income on their personal tax returns and pay taxes on it at their individual tax rates.
However, S corporation shareholders may also have to pay additional taxes on their share of the profits in the form of distribution taxes. They are intended to prevent S corporations from being used as a tax shelter for passive income.
So, why do distribution taxes exist? The idea is that if an S corporation has built up a large amount of passive income over time, such as from investments or real estate holdings, the shareholders should pay taxes on that income as if it were earned at the corporate level. This helps to level the playing field between S corporations and C corporations, which are subject to corporate income tax on their profits.
In summary, distribution taxes are an additional tax that S corporation owners may have to pay on their share of the profits, without proper tax planning. While they can add complexity to your tax situation, understanding how they work and planning for them can help you minimize their impact on your bottom line.
☎️ Schedule your FREE Tax Advisory Session - www.TaxPlanningCall.com/
➡️If you make $10 Million or more in your business; Schedule your call here: ☎️ bit.ly/over10million
0:00 Business Owner Pays Tax On S-Corporation Distribution
01:40 How do S-Corporation distributions work?
04:07 Taxes on the excess distribution
10:41 Loan to shareholder strategy
🤩 If you are looking for a really easy to use payroll software, I personally use and recommend to my clients Gusto Payroll Software - gusto.com/r/boris466
P.S. When you sign up for Gusto, you get a $100 visa gift card 🤑
Related Videos:
🏡 When is the Best Time To Switch From a S-Corporation to a C-Corporation?
- bit.ly/3Bt8aZp
💰3 S Corporation Tax Strategies Explained - bit.ly/3GKgDtD
🔥Owner Compensation Tax Strategy - bit.ly/3akZiLx
*Disclaimer This material & presentation content is for informational and educational purposes only. This material and presentation content is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Because each individual’s legal, tax, and financial situation is different, specific advice should be tailored to the particular circumstances. For this reason, you are advised to consult with your own attorney, accountant, tax preparer, and/or other advisor regarding your specific situation or your client’s specific situation. The information and all accompanying material are for your use and convenience only.

Пікірлер: 52

@borismusheyevcpa Жыл бұрын

Download FREE PDF: 7 Write-Offs Every S-Corporation Business Owner MUST Know bit.ly/3DPw5UZ Schedule your FREE Tax Advisory Session: www.TaxPlanningCall.com

@iamfig23 5 күн бұрын

Replaying, love the info. Didn’t know the owner could receive a loan from the business. Awesome thank you

@cm2843 8 ай бұрын

That was a great video, thank you for putting that together.

@zabernahiyan6586 10 ай бұрын

Boris, you rock! Thanks for all of your videos.

@timsheridan2915 10 ай бұрын

Thanks for the awesome tips Boris!

@laparo3 3 ай бұрын

What an incredibly helpful video

@AccountantFPD 8 ай бұрын

Love the idea of Loan to Shareholder! Good tax strategy.

@DefinitelyNotRin Ай бұрын

So basically as long as you have no loans you won't ever create a negative cost basis. You could have your numbers wrong like you mentioned. But as long as your bookkeeping is correct you wouldn't have to worry. If you ever entered a negative cost basis you'd immediately know you messed up a number somewhere.

@soilbellefarm3710 Жыл бұрын

😮😮😮😮 ok I need to rewatch this one!!!

@borismusheyevcpa Жыл бұрын

Ha ha yes there is a lot of info here

@headlibrarian1996 11 ай бұрын

Is there a good tutorial on how to set up your books (assuming cash accounting and books set up to match tax rather than GAAP) to automatically account for S-corporation shareholder basis as profits, expenses, distributions, and possibly even losses, hit the books. Even better if the chart of accounts makes figuring M1/M2 easy. Accounting articles talk about equity accounts but don't really say how they interact, in practice, with income and expense transactions.

@bluemammal Жыл бұрын

Does deferred income left in savings count as equity in the business?

@DrMetal1978 2 ай бұрын

great video,thanks. Assuming you don't take out more than your profit, is it not better to deduct less, to maximize your distributable amount?

@jackko2540 Жыл бұрын

Hey Boris, as a first year s corp can I put my salary on 1099-nec and put the rest as distribution? Because I didn’t take any payroll.

@CryptoQueen8888 5 ай бұрын

Boris, i filed as a single member LLC and was audited and the IRS only asked for payroll documentation. Now i qualify as an SCorp entitity and pay myself a resaonable salary. Now how much owner distribution can i take out. So i would have to file a K1?? This sounds so good to be true

@CryptoQueen8888 5 ай бұрын

So how would that owner take out excess distribution if the net profit was only that much?

@bluemammal Жыл бұрын

Good

@gauravkhanal6122 Жыл бұрын

How do you take a distribution is excess unless its on credit? Wouldn't your total bank account amount limit your distribution to that 132k?

@MikeJCullen2 10 ай бұрын

What’s the tax liability of a s-Corp that posts no profits or even losses in a give tax year? Is there a minimum distribution and salary amount that minimizes tax liability of S-Corp?

@MarkWingo Жыл бұрын

Wouldn't the Capital Gains tax be less than the tax on the same amount of money as a distribution, effectively lowering the tax on the income the dentist earned, or is it not considered a long-term Capital Gain at 20%?

@victorpoliashov2467 Жыл бұрын

Great information! I reached out to your office for a consultation. I’m a small business electrical contractor. My question is what is considered business equity and what’s considered owner’s equity. Basically at start of my business I invested say 50k to start a business which includes tools, a work van etc. Now to pay myself back the owners invest that does deduct against “business equity” or is that deducting from owner’s investment. The way I see it is I’d want all my money back that invested into the business that were say hard heard W2 wages that were already taxed

@borismusheyevcpa Жыл бұрын

Owner equity and business equity is all the same if u r 100% owner. Ur initial investment in the business which is your equity can be reduced by expenses that the company incurred. If your expenses are more than your income, then this loss will reduce your equity that you initially started the business with.

@CryptoQueen8888 5 ай бұрын

What if we took out the excess distributions but we used that cash to pay for deductions for the buisness??

@efrainanaya5671 Жыл бұрын

Can you show us how you reconstructed the shareholders basis from prior year returns in a similar situation as well trying to figure out what’s the best way to attack it

@borismusheyevcpa Жыл бұрын

Efraim I think I talk about it in this video around 6 minute mark. Generally it’s start with what the business owner contributed to start the business with, plus profit minims distributions.

@CryptoQueen8888 4 ай бұрын

Would it be too late to reconstruct a shareholder loam from prior years tax return

@mariselamorillo2515 Жыл бұрын

Your videos are awesome!! Thank you so much. What will happen again next year to Sam if he has another excess in distributions, Can he requests another loan? So Boris, in my case if a have a reasonable salary of $80,000 and my total AGI for the company was 300K. But I took $150,000 in excess distributions, Am I going to pay 35% on taxes on this excess, right? Is it worth it to do a loan agreement for this? Thank you so much for your help😀 I'm a S Corp, just one member and a single tax payer.

@jackko2540 Жыл бұрын

If you have to pay 35% on distributions then it doesn't make sense to do a single member S-corp in my opinion :/ The point of the S-corp I believe is to not have to pay a lot in self-employment taxes.

@borismusheyevcpa Жыл бұрын

Hi Marisela without knowing ur tax situation in full detail I can not advise but generally doing a loan agreement will reduce your tax liability significantly. I generally recommend a loan agreement ONLY if the business owner has an intention of paying it back to the business. Hope this helps. All the best :)

@borismusheyevcpa Жыл бұрын

Jack it’s 23.8 federal plus state and I don’t agree with ur assessments. Most scrip owners do not have excess distributions.

@KosoyanDrumStudio-dv3zo Жыл бұрын

@@borismusheyevcpa Thank you! I might've used the term excess distribution wrong. But with the distributions you don't have to pay social security tax right?

@Sahjama 7 ай бұрын

If the owner has been reporting loans that are taken out every year, are all of those years added up which can show the access of the owner's draws? In other words, would the IRS count all those years? Thanks

@CryptoQueen8888 4 ай бұрын

I have the same question, I took out excess distribution from the SBA loan back in 2021. Would o be able to still reconstruct a shareholders loan for prior years

@samphares8057 Жыл бұрын

Hey Boris, I’ve got a small scorp about to start making $100k per year rev. At $20k-$40k profit. I’m looking to bring on investors for working capital to scale, what tax tips do you have?

@borismusheyevcpa Жыл бұрын

Investors generally prefer LLC not taxed as an S-Corp or they prefer a c-corp instead. Scorp will limit u as to how u want to distribute out profits and dividends. It is not as flexible. Hope this helps!

@dariuscab2016 Жыл бұрын

Thanks Boris for your video. Very helpful. Can I avail of your services? I have an S-Corp and I live in Southern California. My P&L showed a profit of 48K but this plus 3K of nondeductible meals was reported on my K1. As you know K1 is treated as my income and therefore I have to pay taxes on my personal return. I really would appreciate if I can consult with you.

@borismusheyevcpa Жыл бұрын

Hey Darius! You can schedule your call with us here: www.taxplanningcall.com

@anthonymalik9952 9 ай бұрын

Valid points, Boris, but what you're describing as a "common problem" is something that the market dictates. Just to let you know, I don't agree with this and don't run my practice that way but am simply pointing out the elephant in the room. As you know, depending on the facts, basis may not be relevant to the tax return for a given year. Historically most preparers would not do the additional work to track basis because they would try to keep costs minimal. Quoting a higher price to reconstruct basis often means that the business owner will go elsewhere for a price they deem right. One can't stay in business very long that way. The truth is that any competent return preparer with even cursory training in subchapter K should be able to construct basis but is the client willing to pay for the additional hours of labor? I suspect that the reason why a "tax strategist," I believe you called it, would reconstruct basis is because the client probably values such a professional more than his or her preparer and will agree to different billing/working terms.

@David-cp6rl 8 ай бұрын

Form 7203 has entered the chat.

@CryptoQueen8888 5 ай бұрын

I am just filing my 2021 taxes, I am now going through all of my transactions on my bank statements to determine stasis. What about 3rd party business loans? Are they categorized as shareholders capital. I am 100 percent shareholder.

@GreenFrxg 4 ай бұрын

Is the loan in the name of the business? @@CryptoQueen8888

@johnyc.8714 7 ай бұрын

Oh Snap Boris!

@veritasimmigration 9 ай бұрын

Genius

@lunguyen1073 10 ай бұрын

If I borrow 1M from sba loan, does that 1M consider business equity?

@CryptoQueen8888 4 ай бұрын

That's my question!! If I took out excess distribution from the SBA loan, do I have to pay capital gains tax.

@felixlatorre235 4 ай бұрын

How does one reach out to your team?

@borismusheyevcpa 3 ай бұрын

Hey @felixlatorre235, you can schedule a Tax Advisory call with us here: www.taxplanningcall.com

@darthenx2585 2 ай бұрын

He would still pay taxes on the distribution on his personal tax return. 512k salary plus the 132k distribution.

@iamfig23 5 күн бұрын

I don’t think that’s how the business structure works. He’s only paying taxes on his personal tax return for the salary received. The distribution is an owner draw and is not subject to income tax

@derekj.2384 5 күн бұрын

He would pay income tax at his effective marginal income tax rate. He would avoid paying social security tax of fifteen point three percent the employer side and the employee side.