S-Corp

[Rich]

Have a client who just started an S-Corp. Service oriented business. Takes a salary. Not much in the way of basis for the business. Any draws he takes outside of salary are considered what once exceeds basis? Any primer on this where can read in more details? Thanks in advance

[Lion]

The instructions for the return are a good starting place and will lead you to other pubs, cites, etc. If he's a 100% owner, how is there cash to take, unless he's put in more funds, charged on his personal card, whatever? Follow the money.

[ttbtaxes]

The January and February editions of The Tax Advisor have a two-part series on distributions from an S Corporation. The August 2011 edition of The Tax Adviser has an excellent article about reasonable compensation of an S Corporation employee/shareholder. These are all available free online.

[JohnH]

Accelerated depreciation on financed assets is often the culprit. But then it comes back with a vengeance in the following years.

[Rich]

Thanks for the replies. Lion - I was thinking in terms of income coming in, he takes a reasonable salary, but then takes distributions beyond his salary during the year

[spanel]

LTCG

Chris

[Lion]

Agree LTCG. Distributions that are greater than salary can be a red flag in an S-Corp. Also, distributions without a reasonable salary can be a red flag. In a service business, if he's the only employee shareholder, most of the profit will be due to his efforts, so make sure he's taking a reasonable salary. That's a frequent topic in articles about S-Corps, so read, read, read.

[kathyc2]

Thanks for the replies. Lion - I was thinking in terms of income coming in, he takes a reasonable salary, but then takes distributions beyond his salary during the year

Are you picking up current year (2018) profits to add to basis? Unless there is debt or possibly timing differences between cash/accrual, I don't see how there can be cash available to take distributions over basis