1120S Dividends

[jkorejwa]

Please advise regarding the correct procedure to issue dividends to shareholders through out the tax year. I am contemplating the 1120S writing a check categorized as "dividend" sporadically as funds are available as opposed to issuing a single year-end dividend.

[Snaggletooth]

Corporate Resolution

Ideally, there should be a corporate resolution of the board of directors in any corporation (S or C) to authorize the payment of dividends.

Sometimes as accountants and tax preparers we are forced to report "dividends" because they are "constructive" and not authorized by the process mentioned above.

I didn't read anything about taxation in your post, but if this is an S corp, dividends will not be reportable as taxable to the shareholders for federal tax purposes. For state taxation, they will be taxable as dividends if the state does not recognize S corps. Most states with no personal income tax will not recognize S corps and the S corp cannot pass through thus must pay corporate tax with no deductions for the dividends.

[Gretel]

Form 5452

What about filing form 5452? I am just throwing this in since I have not been able to find out under which circumstances this form is required for S-Corporations.

[ttbtaxes]

Do you mean distributions or dividends? Was the S corporation ever a C corporation and does it have accumulated E&P?

[Gretel]

never C

I never dealt with S-Corps that had been C-Corps - are you saying dividends are always coming from prior C-Corp earnings and any distribution from a S-Corp that never was a C-Corp are distributions? I would be happy to have that clarified in my mind.

[RitaB]

There it is

Do you mean distributions or dividends? Was the S corporation ever a C corporation and does it have accumulated E&P?

I "like" (also have) these questions for the original poster.

[jkorejwa]

Filing the 2553

Once I receive IRS approval to convert to an 1120S, in 2017, can prior year 1065s be replaced with 1120S and amended 1040 filed?

[jkorejwa]

C-Corp not used

Do you mean distributions or dividends? Was the S corporation ever a C corporation and does it have accumulated E&P?

The K1 distributions come for a 1065 partnership. My idea is to terminate the c-corp and convert the partnership to take advantage of paying some wages and avoiding SE tax on dividends.

[Dusty2004]

mixing a lot of entities

You have used the term C-Corp, S-Corp and Partnership.

What the entity once a C-Corp that converted to an S-Corp?

Always an S-Corp?

A Partnership?

Dusty

[jkorejwa]

You have used the term C-Corp, S-Corp and Partnership.

What the entity once a C-Corp that converted to an S-Corp?

Always an S-Corp?

A Partnership?

Dusty

Yes, Dusty. Convert the C to an S to avoid C tax and retain pass thru characteristics. The partnership would be an income stream into the C.

[Lion]

It's probably time to sit down with your board or advisory team -- tax preparer, lawyer, banker, insurance broker, mentor, other members in your industry, board of directors, tax matters persons from the entities that are customers and vendors of your company, etc. -- to examine your long-term goals and what entity can help you attain your goals. Taxation should be only one of your goals. Don't let the tail wag the dog.

[Roland Slugg]

Hello jkorejwa. After reading your OP, everyone's replies plus your own responses to their replies, I believe the wisest and best thing you can do for this client is recommend that the owner(s) refer everything to a tax expert with experience in these matters. There is no shame in telling a client that you have inadequate knowledge of a certain tax matter and advising that he seek competent assistance elsewhere.

[jkorejwa]

Yes, I agree

It's probably time to sit down with your board or advisory team -- tax preparer, lawyer, banker, insurance broker, mentor, other members in your industry, board of directors, tax matters persons from the entities that are customers and vendors of your company, etc. -- to examine your long-term goals and what entity can help you attain your goals. Taxation should be only one of your goals. Don't let the tail wag the dog.

And, I have that meeting scheduled. Thank you for your inputs. The Taxbook provided the basics of corp returns but, it is the mechanics that can be different for any particular situation. Case in point, my own situation, a growing practice that could save nominal SE taxes with an 1120S but, I have chosen to remain a Sch-C due to the quarterly filings, FUTA, and state reporting requirement that I don't want to be saddled with at this point. I'll pay the SE federal tax "freight", so to speak, until I outgrow my britches!