S-corp distribution

[Questionguy101]

When can a S-corp shareholder withdraw his share of dividend distribution?

Let's take year 2009 as an example and the S-corp has a 100% shareholder. If it can be foreseen that the S-corp will have a net profit (after the shareholder's salary) of $10,000 in 2009. Can the shareholder withdraw the $10,000 as his 2009 dividend distribution now? Or does he have to wait after the end of 2009?

[Corduroy Frog]

Yes for Taxes

For tax purposes, it is immaterial whether a 100% shareholder takes the $10,000 now or waits. (I don't have any shareholders who would bother to ask me). If the corporation has made this money, he will be taxed on it whether he takes it or not.

I'm not speaking to any requirement which may be in the corporate by-laws, or the need for corporate resolutions, etc.

[Questionguy101]

For tax purposes, it is immaterial whether a 100% shareholder takes the $10,000 now or waits. (I don't have any shareholders who would bother to ask me). If the corporation has made this money, he will be taxed on it whether he takes it or not.

I'm not speaking to any requirement which may be in the corporate by-laws, or the need for corporate resolutions, etc.

Thank you. But the thing is that even if the S-corp has a $10,000 profit as of today (5/26), it could have a loss in the 2nd half of the year and therefore the final net profit for the whole year would be less than $10,000. What happened if he withdrew $10,000 as dividend distribution now, but the final net profit at the end of the year is only $7,000? Does he put $3,000 back to the S-corp at that time?

[Maribeth]

Thank you. But the thing is that even if the S-corp has a $10,000 profit as of today (5/26), it could have a loss in the 2nd half of the year and therefore the final net profit for the whole year would be less than $10,000. What happened if he withdrew $10,000 as dividend distribution now, but the final net profit at the end of the year is only $7,000? Does he put $3,000 back to the S-corp at that time?

If the shareholder does not have enough basis to cover the distribution, then the shareholder will have "excess distributions" from the S corp. These excess distributions are recorded as a LTCG on Schedule D. The shareholder does not have to put the $3000 back in the corporation.

Maribeth