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S-Corporation Distribution from Retained Earnings-How to treat on 1040

I have a one-person S-corp which has been operational for a little over a decade.  It has been profitable each year, never experiencing a loss.  I have paid myself a reasonable salary, which has never been an issue.   I have NEVER taken a distribution up until last year.  Prior, the ordinary business income I had after paying my salary is usually between $2000-$5000.  2 years ago I had a very profitable year and had business income of $35,000.  I did not pay this out as distribution. 

 

I took a $55,000 distribution in 2018 which was basically 50% of the accumulated business income which I never took out of the business.  My confusion is how to process this on my 1040, as I have already paid federal taxes on this and am assuming the entire distribution is tax free.  Can you explain the mechanics of how this would work?

 

(Yes, I know I should talk to a CPA.  I am currently interviewing CPAs to hire to perform my accounting)

1 Comment
QuickBooks Team

Re: S-Corporation Distribution from Retained Earnings-How to treat on 1040

Hello, @Kenteman.

 

Recording your Scorp-related transaction depends on the type of QuickBooks you’re using and the form your filling. Let me share some information on how this works.

 

To start with, may I what version of QuickBooks are you using? This will allow me to provide you with more accurate information.

 

If you’re using QuickBooks Self-Employed and file for 1040 Schedule C, your self-employed related income should be recorded and categorized under Schedule C: Business Income.

 

Since you’ve already paid your federal taxes for 2018, let’s ensure to record this in the Tax Profile setting. By doing so, you’ll have an accurate calculation of taxes.

 

 To learn more about self-employment taxes, you can refer to these resources:

While if you’re using QuickBooks Online and you’ve recorded all your income and expense transactions from last year, you can create an account specifically for Scorp retained earnings. 

 

To enter an opening balance to your retained earnings account by creating a journal entry.

 

Here’s how:

  1. Go to the Plus (+) icon.
  2. Select Journal Entry.
  3. Set the date for the opening balance to match.
  4. On the first line, select Retained Earnings from the Account column.
  5. Enter the amount of the balance in the Credits column.
  6. On the second line, enter the account we’re using to create the balance. 
  7. Enter the amount in the Debits column.
  8. Click Save and close.

You can read through this article for more insights: Record a retainer or deposit.

 

Alternatively, I’d recommend consulting with your accountant so you’ll be guided properly in tracking your Scorp earnings.

 

Let me know if you have other questions. I’m always here to help.

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