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Level 3

K1 1120s

Hello. Just trying to understand the logic of a k-1. I understand as an S corp shareholder I’ll pay myself a reasonable salary. The the income will flow through my k-1 based on shareholder ownership. So last year I got $48,000 as ordinary income on k-1 but I just noticed i don’t even think I even took that money out.

Since that ordinary income part is not known on the k-1 until tax season. How or when can I actually get that amount? Let’s say in 2019 I have ordinary income of $25k. Do I pay myself that next year after doing my taxes? Or is that amount saved to increase my stock basis to allow me to take out more tax free distributions? 

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Best answer 11-08-2019

Accepted Solutions
Level 15

Re: K1 1120s

The requirement to pay yourself a reasonable salary, requires that you use payroll and deduct required taxes and pay them to the IRS during the year. You actually get money from payroll just like any other worker in a corporation.

 

Distributions are made out of retained earnings after the required stockholder meeting (yes you have to have one even if you are the sole stockholder) approves a distribution. That distribution is only tax free if it does not exceed the value of your stockholder accounts.

 

I'm not sure but I would suggest you get with a tax accountant who knows s-corp accounting and get this all straightened out

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Level 3

Re: K1 1120s

2 Comments
Level 15

Re: K1 1120s

The requirement to pay yourself a reasonable salary, requires that you use payroll and deduct required taxes and pay them to the IRS during the year. You actually get money from payroll just like any other worker in a corporation.

 

Distributions are made out of retained earnings after the required stockholder meeting (yes you have to have one even if you are the sole stockholder) approves a distribution. That distribution is only tax free if it does not exceed the value of your stockholder accounts.

 

I'm not sure but I would suggest you get with a tax accountant who knows s-corp accounting and get this all straightened out

View solution in original post

Level 3

Re: K1 1120s

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