Skip to main content
ramfitness
ramfitness
March 25, 2022
Solved

Shareholder Distributions

  • March 25, 2022
  • 2 replies
  • 0 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.   

2 replies

G
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
    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.   

      ramfitness
      ramfitnessAuthor
      March 28, 2022

      Thank you so much,

       

      When I looked at Charts of Accounts to create a new account, I created it under Income / Sales / 2022 Shareholder Distributions. I hope that was correct.

      Rainflurry
      Rainflurry
      March 28, 2022

      @ramfitness 

       

      You want to set it up as an equity account named '2022-Distributions'.  The Detail Type can be retained earnings.  Delete/make inactive the income account you created.  If you post to the income account, your distributions will reduce your current income - not good.  

        Terms & ConditionsAccessibility statement