I have two questions regarding Shareholder Distributions for my S-Corp where I am both the owner and employee.
1. My S-Corp pays my ACA Healthcare premiums each month. At the end of the year I am supposed to close out the Health Insurance account with a Credit to Health Insurance and a Debit to Shareholder Distributions. Is this correct?
2. I'm also taking a $2500 distribution. I have Capital Stock of $3000 and I am the 100% shareholder. What are the journal entries for this transaction?
What entries should I be making to Retained Earnings at the end of the year?
I appreciate any help. My income is very low. Thank you.
Assuming that a) you paid yourself a reasonable salary and b) there is sufficient "basis" (basically Retained Earnings but check with a tax expert) you can pay yourself a distribution. The allocation of the cash payment is a debit to equity. It's not a journal entry; it's a Check/Expense transaction. I would set up an equity type account called Shareholder Distributions, to keep it separate.
The payment must come from Retained Earnings, not from Capital Stock, as you seem to suggest
1. No, this is Wrong. You have not been allowed to post that expense as Distribution for at least a decade, now. You have to run these through payroll and they are Taxable to you, the beneficiary. Whoever gave you that guidance either is too "old school" for new rules, or you need a new CPA if that is the person insisting you do it like that.
Example text: "Therefore, the additional compensation is included in the shareholder-employee’s Box 1 (Wages) of Form W-2, Wage and Tax Statement, but is not included in Boxes 3 and 5 of Form W-2."
This is especially applicable to you, because you stated this is not a Company Group Plan and because you are a more than 2% Shareholder.
2. You are Never removing the value of the Stock; that is the Par Value that reflects the Corporate Stock that was issued to form this corporation as a corporation. Don't confuse this type of equity with other equity, such as Retained Earnings, Capital Contribution balance, and Distributions.
There is no Journal Entry for taking a distribution. That is already what you would enter on the Check or Banking Transaction that pays you the amount.
After year end entries from tax preparation are done, the Retained Earnings has the final amount. You don't need to do anything with it., because you are the only shareholder. There is no reason to split and allocate it. For the First Date of the new fiscal year, you might want to zero out Distributions to Retained Earnings, so that it starts at $0 for the new year.
And you cannot afford to Avoid seeking the help of a CPA or tax preparer.