Shareholder Distributions

ramfitness · ‎March 25, 2022

Hello QB Gang,

Complete QB Newbie here. I am a Personal Trainer with an S-Corp business that I am the only employee. I formed the business back in 2007 and have been using the same Accountant since then. I started using QB as my accountant is retiring and the cost of a new accountant is prohibitive. Considering the simplicity of my transactions (One Business Checking / One Business CC / Only me as Employee of the business) I am taking a shot at doing my bookkeeping myself.

My question:

I pay myself twice monthly. My accountant breaks it down to part salary and part "Shareholder Distributions". QB shows that as "Retained Earnings". Is that the same thing as Shareholder Distributions? I do not want to make the wrong reporting. Any help or guidance you can offer is highly appreciate.

Rainflurry · ‎March 26, 2022

@ramfitness

Being an S-corp, it's important that you pay yourself a reasonable salary for the services you provide to the corporation. Your salary is subject to Social Security and Medicare taxes (15.3% of wages), whereas your shareholder distributions are not. So, you might think "Why not just pay myself completely by distributions and save 15.3%?". The IRS doesn't like that since you are avoiding taxes. Therefore, just make sure you are paying yourself a reasonable salary and, after that, then you can use shareholder distributions to take money out of the corporation.

It's a good practice to set up a shareholder distribution equity account for each year. So, for example, set up a '2022-Distributions' equity account for this year's distributions since that amount needs to be reported separately on your S-corp tax return and will be easy to locate.

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giobookkeeping · ‎March 25, 2022

Hey there! I'd recommend creating a separate chart of account to track your shareholder distribution transactions. From what I understand, QBO uses the Retained Earnings category to report your net income/loss from the all previous periods in the balance sheet. The software does this automatically when you run your balance sheet.

You can learn more about adding a new chart of account here. Good luck!

Rainflurry · ‎March 26, 2022

@ramfitness

Being an S-corp, it's important that you pay yourself a reasonable salary for the services you provide to the corporation. Your salary is subject to Social Security and Medicare taxes (15.3% of wages), whereas your shareholder distributions are not. So, you might think "Why not just pay myself completely by distributions and save 15.3%?". The IRS doesn't like that since you are avoiding taxes. Therefore, just make sure you are paying yourself a reasonable salary and, after that, then you can use shareholder distributions to take money out of the corporation.

It's a good practice to set up a shareholder distribution equity account for each year. So, for example, set up a '2022-Distributions' equity account for this year's distributions since that amount needs to be reported separately on your S-corp tax return and will be easy to locate.

ramfitness · ‎March 28, 2022

Thank you so much,

When I looked at Charts of Accounts to create a new account, I created it under Income / Sales / 2022 Shareholder Distributions. I hope that was correct.

Rainflurry · ‎March 28, 2022

@ramfitness

You want to set it up as an equity account named '2022-Distributions'. The Detail Type can be retained earnings. Delete/make inactive the income account you created. If you post to the income account, your distributions will reduce your current income - not good.

ramfitness · ‎March 28, 2022

Aha! I found it under Equity / Shareholders' Equity but it's asking me whether this is "Contributions" or "Distributions". My accountant used to call them "Shareholder Distributions", So I am going with that. Keeping my fingers crossed, LOL. Thank you.

Giovann_G · ‎March 28, 2022

Good job, ramfitness.

I and the rest of the Community are extremely happy that you've been able to set up your Equity account.

I also encourage you to visit our Help articles page for further details. Here you can find topics and discussions to help in completing your tasks.

You're always welcome to post again if you need further assistance managing your account. We're here to back you up.

AlcaeusF · ‎April 18, 2022

Hello Rainflurry,

I have reviewed the solution you’ve shared and it's correct and accurate. Thank you for sharing your inputs to help address the issue.

We love to see members supporting one another! Have a great day.

jennfr00 · ‎September 29, 2022

so, would it be new account, Equity, save account under (Distributions), Tax form Section (Retained Earnings), Account Name 2022-Distributions?

Susan8783 · ‎January 10, 2024

Can you please give a step by step on how to set up the Shareholder Distributions account in QB online?

Rainflurry · ‎January 10, 2024

@Susan8783

Settings > Chart of accounts > New > Equity > Save account under 'Equity' > Tax form section 'Partner Distributions' (technically, this isn't correct but it's as close as you can get in QBO) > Account name 'Shareholder Distributions' > Save.

Susan8783 · ‎January 11, 2024

Thank you! That is what I did but I am unable to get the amount subtracted from retained earnings. I have tried:

creating a Transfer from checking to the shared distributions equity account
creating a Check where the payee is myself and the category is the shared distribution equity account

How can I get the retained earnings amount to decrease by the shared distribution amount?

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