Taxation in an S Corporation (Distributions vs Owner's Compensation
Вставка
- Опубліковано 30 вер 2024
- QuickBooks 30-day free trial + 30% off for 12 months:
quickbooks.int...
S-Corporations, 11minute expert from Tax Power Hour webinar from late 2017
Timestamps:
0:44 - Advantages of Electing as an S-Corporation
1:03 - Purpose of the Schedule K-1 Source Document
2:40 - Taxation Differences Between S-Corporations VS Partnerships and Sole Proprietorships
3:39 - Why Owner-Employees Must Pay Reasonable Compensation
5:20 - Example of Compensation Taxation VS Distribution Taxation
9:37 - Distributions Above Basis
Is the rest of this webinar available online?
MAZELEE We only did a few of these, there is like 5-6 episodes on UA-cam
MAZELEE actually is this one: ua-cam.com/video/ihZiH8iu8G8/v-deo.html
Love the part where you explain shareholders capital accounts
:)
how do you pay distributions to shareholders(S-Corp) on Quickbooks online? where do we categorize? do you create new account Equity, save account under: shareholders equity?,tax form section: Owner's equity?
Owners’s Distributions (Equity)
Timestamps:
0:44 - Advantages of Electing as an S-Corporation
1:03 - Purpose of the Schedule K-1 Source Document
2:40 - Taxation Differences Between S-Corporations VS Partnerships and Sole Proprietorships
3:39 - Why Owner-Employees Must Pay Reasonable Compensation
5:20 - Example of Compensation Taxation VS Distribution Taxation
9:37 - Distributions Above Basis
Joseph Isip can I hire you to do all my time stamps? LOL
Hi Hector, Thank you for a very detailed explanation. I have a question.
Lets say I setup a single person owner S-Corp, and I am the only owner,
shareholder and employee. So here is the question. How large of a
distribution of a $100k profit could I get if I own only 2% of the
company? Could I make a more than 2% of the $100k profit distribution to myself?
Need to distribute yourself according to ownership.
Can you confirm calculations on the following scenario:
Single owner S Corp, net income is $140k, owner takes a salary of $35k. Assume the business is in Florida so no state income tax. Also, owner files joint married, and has 2 dependents.
As the owner you basically pay 15.3% FICA tax on the $35k salary, this ends up being $5,355. Then you also pay federal income tax on the total $140k, which is (taking into account the $24,800 deduction from the 2 dependents) $12,924. Then you combine both those tax figures ($5,355 + $12,924) and you get a total yearly tax total of $18,279??
And what about QBI? Would this also apply?
Thanks.
Scenario: Member contributes $100k capital to S-Corp. S-Corp profits $150k during year.
AAA (Accumulated Adjustment Account) & basis are different. Only income increases AAA.
AAA tracks undistributed retained earnings, not capital contributors/basis. Only distributions above your capital contributions portion of your basis where you start drawing from retained earnings shows in the AAA distributions calculation. So my basis is $250k ($100k capital contribution + $150k profit). My basis is lowered by $200k via distributions ($100k is return of capital, and $100k is from my retained earnings).
Correct way (imo): i.imgur.com/sQWnVcp.jpg
wrong way: i.imgur.com/4vFz4TA.jpg
Question:
Am I understanding this correctly?
Well, this is to me an unusual set of circumstances. A family S-corporation was establishes with equal shares (25%) each.
My brother in law passed in 2000. And his spouse, I believe inherited his share. So, in 2006. The S-corporation was sold. The proceeds were, and still to this day have not been distributed as a result of the buyer getting a loan. All share holders got a monthly on interest to make the sale. So, years have gone by and we still haven’t closed on the sale. In the mean while my former Father-in-law passed in 2021 and my former mother-in-law passed in 2022. So, my question is do their shares go to the remaining share holders once the proceeds of the sale is distributed. My in-laws didn’t will their shares. So, our attorney feels that the purchaser will be coming up with the sale price within the month of March 2022. My final, question is, are the proceeds of the sale revert to the remains 2 shareholders when the money is finally distributed?
I dint answer tax questions like this, sorry.
US tax person??? ITS CALLED.... US CITIZEN !
What would be considered a reasonable ratio for compensation?
David Jaklitsch my starting point is 50/50.... but what I say, does not matter. Every circumstance matters..
If you mean salary compensation, it is what the company would usually pay to hire someone with the same skills. In the example, Mike maybe a technician and Steve maybe an engineer. Hence, Mike earn's a salary of $20,000 and Steve has a salary of $50,000, regardless of ownership basis in the company. The net income distributed per owners capital investment percentage is different.
Hi Hector, how do i report payments made to a corporation since they don't qualify for a 1099-nec?
You can still do it.. its up to you
Hi Hector, do you know if S-Corporation dividends paid out to yourself would be subject to federal & state tax? I understand they are not to self-employment taxes. I currently earn 150k/year and am under the FEIE, meaning I do not pay taxes on the first 105k I earn abroad. If I incorporate myself as a S corp and give myself the remaining 45k as distributions, I think it would be tax free also?
A. Moropoulos distributions are generally not taxable. But the net income of the SCorp will be... and the distributions come from income (generally) so they are not really “tax free”
Hi Hector, can you clarify this for me..... company is an s-corp so i setup shareholder contrib and distrib accounts for each. I closed out the distrib amounts to the contrib account already after year end. Do I create equity accounts for Shareholder Earnings and reallocate the Retainer earnings to these for the percentage owned? and then would I close out the shareholder contrib/distrib accounts to it at year end?
So.. you CAN do that.. but is not necessary
Hola Buenas Tardes algun link donde pueda comunicarme con usted, me interesa su tutoriales para una corporacion
Mony Reyes hola.. email hector@garciacpa.com y teléfono 954-414-1524
I understand the K-1, but how do you determine the W2 salary vs cash distribution?
You don’t “determine” it, you most process payroll for the scorp
Hector Garcia CPA. I already do. So basically, I continue doing W2, also take a cash distribution (as set in bylaws), and carryover the net profits at EOY via K-1 (minus the 20% for 2018)?
Chris Sweeting yeap.. the Profit After payroll will be subject to a 20% reduction... but make sure to look at sec. 199A there are some restrictions.
Hello, I would like to confirm some math. Mike holds 70% so 70% of $30K = $21K. Steve holds 30% and 30% of 30K = $9K. Am I missing something at the 5:30 min mark? Oh I see you corrected this around the 9:00 mark.
Hi Hector. Great information! Thank you