QUESTION DETAIL
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I have a S-corporation where I am the only shareholder. I started the year with a zero basis and I pay myself a salary. In 2013, after my salary and all other normal business expenses, I have an extra amount of money that the corporation made of $25,000 that was paid out during the year to me via check with the note “distribution” on the check. What is the correct way to record this $25,000 on the Form 1120-S, on the Schedule K-1, and where will it flow to on my personal 1040? Does it get recorded as profit on the Form 1120-S and Schedule K-1 with a note on line 16d on the K-1 that says distribution then flows into the 1040 on the schedule E, then the distribution note on the line 16 D K-1 does not get recorded anywhere on the 1040 since the profit that was made was distributed back to the owner Or is there a different way I need to handle this type scenario?
ANSWER
The BIDaWIZ Team's Answer:
You are generally correct in your reporting approach. The S Corp income that flows to the shareholder is reported on line 1 of the form Schedule K-1 which flows to Schedule E, line 28, column (j) and eventually to line 17 of the form 1040. The distribution is indeed reported on line 16d of the form Schedule K-1. As you note, your stock basis in the beginning of the year that began at zero would be zero at the end of the year based on the facts and circumstances that you've provided. Please note that since S Corporations are pass through entities and do not pay any tax, the profit flows to the shareholder. As such, the shareholder profit will only be taxable as a distribution on the shareholder's tax return. This is referenced in IRC Section 1361.
