$$ out of S Corp

[S T]

I have a t/p that phoned today, successful S Corp, both shareholders are taking out a combined $250,000 in wages, so no problem there.

In the meantime they are accumulating $$ in the S Corp.

What is the best way to take money out of the S Corp with the least amount of taxes. They would like to form a LLC and purchase some investment property.

Thanks,

Sandy

[BHoffman]

Besides SCorp drawings?

They can take cash drawings up to their basis without incurring more tax. They must take the cash distributions on the same date and in accordance with their ownership percentages.

[S T]

s Corp

Okay so I am brain dead right now and can't think, a horrible sinus headache and ears plugged. So not one of my better days.

So since the S Corp profits have already been passed through on prior or current K-1 forms and taxed,(wages and other profits) the money that is still in the S Corp can be distributed as cash without any additional tax.

And more importantly since wages are more than reasonable wages, the monies do not have to run through payroll.

Thanks BHoffman, for the advice on the distributions on same date and ownership percentages.

So if the above is all in line and followed, then the cash distributions taken out would not have any adverse tax consequences, assuming that they do not distribute below basis, however, it will reduce their basis in the S Corp.

I think I have it, but would welcome any additional comments.

Sandy

[BHoffman]

Headaches

Perhaps a fine and tasty Nyquil cocktail would be on the menu this evening

[JG EA]

I have one more thing to add. I know because I forgot about it just this year and have to do amended return. This came right after I had to do my first amended corporation return for another reason.

If Shareholders have no basis because of taking out all the distributions up to basis then if there are any 179 expenses these cannot be taken on the return and have to be carried over to a future day. I know you know so just a reminder.

[S T]

Thanks

I do have basis worksheets as this is a relatively young S Corp, so I am doing those, but I welcome all the assistance and input I can receive. And I am still learning so much on S Corps as well.

Shareholders have not been taking distributions. Just wages

So BHoffman and JG(as always) Big Thank yous!

I think I will try a "Hot Toddy" rather than the Nyquil Toddy, tastes better!

Sandy

[DTS]

I think I will try a "Hot Toddy" rather than the Nyquil Toddy, tastes better!

Sandy

Just so you know before you mix the "Hot Toddy", alcohol spreads infection. Sorry to be the one to spoil the evening, but I'm just looking out for your health!

Dennis

[S T]

Should Kill Infection

Just so you know before you mix the "Hot Toddy", alcohol spreads infection. Sorry to be the one to spoil the evening, but I'm just looking out for your health!

Now Dennis, where did you hear that! Lemon juice in the "hot Toddy" is an antibacterial or something like that! I agree The OTC stuff is certainly not good for you, such as Nyquill, etc, and will probably do some major harm to the body! Anyone's guess what is in those items.

Haven't you watched all of those old movies, where they didn't have anything except some type of "alcohol" and used it for disinfecting before they performed those horrendous surgeries in the woods, removing bullets, and cutting off limbs, etc.

Anything would make me feel better, than what I feel right now, my head feels like it is going to explode! After I do a few more "get ready for the mail items" my head is hitting the pillow!

However, thanks for thinking of my well being!

Sandy

[DTS]

Now Dennis, where did you hear that! Lemon juice in the "hot Toddy" is an antibacterial or something like that!
Sandy

As you know, my wife is an ex-nurse. She dispensed this valuable info to me years ago when she arrived home and saw I had downed a pint of warmed V.O. (with lemon and honey, of course!). I'm not sure if it's true, but sure tastes good going down!

Dennis

[Snaggletooth]

Dividends

Sandy these withdrawals are actually "dividends." They are not taxable, but they are dividends for corporate purposes, although the term is meaningless for Sub S.

The only point in bringing this up is that the distribution should be made in proportion to everyone's ownership. Failure to do so is more of a legal problem than a tax problem.

[S T]

Distribution

Thanks Snags,

Make a notation in the Corporate Minutes for distribution

As long as taxpayers have not exhausted their basis,
the S corp could distribute to the 2 shareholders $ 100,000
Shareholders 80% and 20%, so $ 80K and $20K

and as posted prior, the distriubtions are done on the same date

all is well

and report on the 1120S k-1 as a distribution and adjust shareholders basis in the year distributed

no taxable event

Thanks,

Sandy

[JoshinNC]

The only problem I see is the $250,000 in wages

There is no way in hell I would have any S-Corp owner take a wage of more than $50,000. You're just throwing money into the government coffers.

[S T]

Not my decision

That is how much the shareholder's wanted, and there are still plenty of profits in the S Corp.

Sandy

[JoshinNC]

Did you advise them against taking that high a salary?

That is how much the shareholder's wanted, and there are still plenty of profits in the S Corp.

Sandy

I would hate to see a John Edwards wannabe lawyer type send you a letter one day telling you that you are being sued for not advising your client of a way to substantially reduce their income tax without affecting in any way their cash flow.

[BHoffman]

Reasonable Salary

Josh, after they crack over the SS limit the only thing "extra" they'll pay is the Medicare tax, but you make a good point.

I don't think anyone is going to get sued over this. On the flip side, it might be considered malpractice to advise a client to take a $50k salary if the IRS challenges and the standards clearly show reasonable salary for that particular type of work is $150k.