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Apples521
December 6, 2024
Question

How to record an S-Corp distribution for paying income taxes?

  • December 6, 2024
  • 1 reply
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I have an S-Corp and am the only employee.  My 3rd party payroll prcessor pays my federal and state income taxes each month in a separate withdrawl from my checking (along with standard PR taxes).

 

I'm understanding the federal and state income taxes are personal and not taxed to my S-Corp, so these would be considered a shareholder distrution, is that correct?  Would I set this account up as an equity account in the 3000's and expense these income tax payments from that account? 

 

And am I understanding these distributions would not be taxable- so I wouldnt' be double taxed?

1 reply

Rainflurry
Rainflurry
December 6, 2024

@Apples521 

 

You're mostly correct.  If you need to take cash out of the business to make your estimated payments, you can make a shareholder distribution.  Are you 100% owner of the S-Corp?  Shareholder distributions need to be made pro rata based on ownership percentages, so if you're 50/50 owner with another shareholder, you would need to make equal distributions to each shareholder.  Distributions are not taxed as long as you have adequate basis (past years retained earnings plus current year net income) because you have already paid income tax on retained earnings and will be paying income tax on current year net income.  To make a distribution, assign your Shareholder Distributions equity account to the payment.  To be clear, this is not an expense to the S-Corp, it is a reduction in equity.    

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