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ramfitness
ramfitness
March 25, 2022
Solved

Shareholder Distributions

  • March 25, 2022
  • 11 replies
  • 453 views

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.

Best answer by Rainflurry

@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.   

11 replies

giobookkeeping
March 26, 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
    RainflurryAnswer
    Level 11
    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.   

      jennfr00
      September 30, 2022

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

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