Updated July 7, 2015
I get a lot of questions about Shareholder Distribution S Corp issues. The main question is, where do I pay any tax that is due?
S-Corporations are pass through entities from a taxation standpoint. If you own an S-Corp and you have an income taxable year, then the federal income tax is generally payable on your personal tax return, or Form 1040 at the federal level. The income or loss is passed through via Schedule K-1. You will only pay income tax once, rather than being subject to the double income taxation of a regular or C-Corporation.
If there is a loss, then the loss could possibly be deducted on your personal income tax return if you have a basis for the deductibility of that loss. This deduction is not automatic. In order to have a basis for the loss, you must be able to prove that you funded the loss.
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Chris Amundson is the President of Accounting Solutions Ltd., a full service public accounting firm of Certified Public Accountants and Enrolled Agents handling the bookkeeping, accounting, tax preparation, and audit representation needs of Businesses, Estates, Trusts, and Upper Income Individuals.