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Experienced Member

Should the subaccounts of partners equity accounts be accumulated adjustment "detail type" equity accounts or partner's distribution/contributions equity accounts?

I have a California S Corp as 50% Equity shareholder, equal partners.

My equal partner (shareholder) is and always has been in charge of the Accounting in QB. 

After 5 years, I come to realize that he has been Burying me in the shareholder distributions account by placing all my monthly Salary checks in there and also using The Funds transfer module to place all my  ATM withdrawals in there too.  The ATM transactions are valid cash purchases of business expenses with accompanying receipts.

Here's the Questions:

1.) How do I take these cash withdrawal entries placed in my Shareholder Distribution account and move them to the correct account?  ie: supplies or office.expenses...etc.

And then what do I do next to make sure QB checks out with no errors?

 

2.) My monthly Salary checks we're placed into the Shareholder distribution account also but here's the thing,.......I was sent a 1099 every year and taxed as Vendor.

What is the best way to clean up this mess?

note: my partner was not taking any distributions at the time my distribution account was filling up.

Scales were out of balance by almost $100k.

 

Thank you.

2 Comments
Established Community Backer ***

Re: Should the subaccounts of partners equity accounts be accumulated adjustment "detail type" equity accounts or partner's distribution/contributions equity accounts?

you have more troubles than what they used to say, "Carter's has pills" You need far more than free internet advice. I suggest you immediately hire a CPA that is an enrolled agent, other than whomever the previous tax CPA was since this is I am afraid a very big mess.

 

  • As a Subchapter S corporation ALL shareholders that work in the business are employees, W2 employees and must be paid what the IRS refers to as reasonable wage BEFORE any distributions
  • Although S corp shareholder contributions are a little different than LLC member contributions what comes into play in an S-corp is that the shareholders need to be reimbursed for business purchases which if unpaid go on the books as shareholder loans (to the company)
  • Nobody gets distributions unless all shareholders get distributions - just  liek W2 salary, even if it is left with the company there needs to be a paper trail of printed checks endorsed back to the business

at least that is my on the surface understanding of your dilemma. Like I said, you need a real CPA with forensic accounting background, maybe even a business divorce lawyer. Even if you had a guaranteed payment instead of salary before distribution it would not be on a 1099 but in your K-1

Established Community Backer ***

Re: Should the subaccounts of partners equity accounts be accumulated adjustment "detail type" equity accounts or partner's distribution/contributions equity accounts?

I agree with John, get with an independent tax accountant, enrolled agent immediately.

 

Your partner, charitably, does not know anything about corporate accounting, in which case a divorce is a definite consideration.

 

But it could also be fraud/embezzlement he is doing, in which case you should also keep in mind criminal charges, and or a civil suit.