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Shareholder Distributions

Forum|Forum|4 years ago
March 25, 2022
11 replies
315 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.

QuickBooks Online

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.

G

giobookkeeping

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!

RainflurryAnswer

Level 11

@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.

S

Susan8783

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

S

Susan8783

@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.

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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