S-Corp Dividend

It should be recorded to an Equity type account. You might want to call it Dividend/Withdraw or Owner's Equity.

Hi, Can you be a bit more specific. Lets say at the end of the year, the S-Corp has made $100K in profit and there are 2 owners, 50% each. I understand you example, if we were to actually pay out that money. Debit the Checking Acct, Credit an Owner's Equity account. No sweat. However, what if we're not going to pay out that dividend, but rather retain it within the company. Since the two oweners are still responsible for the taxes on 50% of the profit how do we create entries that would reflect that the profits were 'allocated' to the onwers, but no cash was distributed? Even more complicated would be that only a portion of the 'profits' are distributed, the rest are retained as owner equity. Example: $100K profit. 2 Owners 50% each. Company is going to distribute $20K to each and record the other $30K as owner equity. Where do we debit the $30k to if we're going to credit it to Owners Equity? My first though was to debit it to Retained Earnings, but I'm not sure that is right or even possible.

This is actually a user's forum. There are a couple CPA's that hang out here, but you really need to consult with a tax accountant.I don't really think there's a book entry to make anyway, it's just recorded on the K-1 for their tax returns. On the book, the earnings just go to Retained Earnings until distributed.

While I agree that the share holder gets a K-1 to report, shouldn't some notation be made in the company books as to what should have been paid to the shareholder for each year. If a distribution isn't paid for many years, wouldn't it be better to have tracked how much each shareholder was allocated each year rather than simply letting it build up in Retained Earning. What if ownership changes before a distribution? Without some sort of allocation inside of the company's books, it would be a real mess 5 years down the road trying to allocate distributions if ownership percentages have changed and there's no record of the annual allocations. That would mean having to back calculate allocations based on some other records outside of Quickbooks.

I am the owner of an s-corp and want to take a shareholders distribution of $10,000. I am looking for help recording the transaction in QB. Some of the threads say to run thru payroll and customize the taxes that are taken out, and some people say just cut a check and post to a new equity account (ex. Owners Equity). Does anyone know for sure what taxes have to be withheld because I guess you can either withhold them now, or at the end of the year?? thanks

You need to pay yourself a 'reasonable' salary before you can take a straight distribution. Lets say your company made $200,000 in profits. If you try to take a $175,000 dividend payment and only pay yourself as an employee $25,000, the IRS is going to flag your return. (They want you to be paying the various payroll taxes that you wouldn't otherwise have to pay on the dividend payment.) They would rule that your salary isn't reasonable given the scope of your ownership in the company. (If somebody else is doing your job responsibilities at another company, what are they being paid by comparison? If your salary is substantially below that and you're taking a huge dividend, watch out.) If you instead pay yourself $125,000 as regular payroll as an employee of your company and take a $75K dividend payment, you run far less risk because the IRS will conclude that your 'salry' was reasonable given the size and scope of your business. The only advantage of paying Dividend versus salary is that you don't have to pay Medicare on dividend payments (1.45%). Thus if your dividend payment is small, it's probably best to just pay yourself everything as a salary throughout the year and/or give yourself a 'wage bonus' at the end of the year to cover any extra amounts. Why flag your return to save 1.45% on a 5 to 10K Dividend?? This was my accountants advice. If your company is making a lot of money, then the Medicare savings can actually add up. If your company makes $500,000 in profit and you take $150,000 salary, your dividend of $350,000 would save you $5075 in medicare tax versus paying through payroll. Remember to make quarterly estimated tax payments though to avoid penalty at the end of the year. If your company is real small, and only made $10K last year, then the circumstance are different and I don't know whether by just paying a dividend you run any risks. Remember, until you cross the Social Security cut off (currently at 90K), you still have to pay all the same taxes with the exception of Medicare (which on a $10,000 dividend only amounts to $145.00). My rule of thumb is that if your company is making less that $125,000 per principle owner, it is just easier to do it through normal payroll like the rest of your employees and save the headache of Dividends. None of this advise applies to dealing with minority owners (e.g. 5%, 12%, etc) or passive owners. I don't know how the IRS deals with that.

I guess I'm a little confused here. I thought the principal reason the S-Corp designation exists is to prevent owners of small businesses from being double-taxed--once as a business on the income of the company, and again as personal income when you take a dividend. If you pay yourself a "reasonable salary" via payroll, how is this beneficial if you're taxing yourself on both ends? Seems self-defeating.Forgive me--I'm new at this. I also was curious how an S-Corp owner should re-imburse themselves in QBP for start-up costs and other expenses. We paid all these personally for our first 4 months and are just now in the black and would like to cut ourselves a check, but are unsure of how to categorize it (right now I have us set up as a vendor with a bill due... is this right?).Thanks!

If you pay yourself a salary, the S corp shows it as an expense and does not pay taxes on it.Our accountant told us to be sure to pay salaries and bonuses so that the S corp would show no income at the end of the year and therefore paid no taxes. That way ... no double taxation on income. All employees (even those who are owners) pay their own taxes.Of course, the S corp has to pay the payroll taxes if that is what you mean.Keeo in mind that I am not a CPA, just passing on what I was told.

S-Corps do not suffer from double-taxation. 16607nemeth is incorrect and his accountant is not giving him the correct information regarding S-Corp versus C-Corp. (Some version of his advise would apply to C-Corp).Income = 200,000Other expenses = 50,000Salary (inluding owners) + payroll tax = 100,000Net Profits = $50,000In the above example, part of what would otherwise be paid out in 'profits' were instead paid to the owner as wages. The wages were taxed at this point. (once). The owner is given a W2 at the end of the year like all other employees.The Net Profits of $50,000 are now passed straight through to the Owners. The Owners then pay taxes on it on their individual tax returns. (once). The only advantage of not paying everything on wages is that the $50,000 is not subject to medicare tax. (1.45%).In a C-Corp, the $50,000 Net profit would first be taxed at the corporate tax rate (once), then what remained COULD be distributed as a dividend to the owners, where it would be taxed again (twice). That is the double taxation that is avoided by using a S-Corp instead of a C-Corp.C-Corp Example Cont.Net Income: $50,000Corporate Tax: -$20,000 (just an example amount)Retained Earnings: $30,000 (funds now available for dividend)Dividend: 30,000Owners tax on Dividend (15%fed) = 4500The $4500 tax on the dividend is the "second" taxation of the profits. Another words, the 50,000 in profits was taxed once at the corporate tax rate while still inside the corporation, and again when distributed to the owners.

The owner of the company is taking a dividend, that her accountant calls an S-Distribution. He told me to " code it to S-Distribution, which is an account in the equity section before common stock and retained earnings". I cannot find this account in QB. My question is, what tax line do I assign this?

Schedule K: Other Items: Property Distributions (Including Cash). Note: unless you are using an Intuit program to do your business taxes, you don't need to assign tax codes.