Subject:  S-corp. withdrawal
Date:  Mon, 31 Jul 2006
From:  Thao

Dear Mr. Gray,

I own a very small business and receive wages and W-2s from my S corporation. After the year-end, there is some left over profit reported on Schedule K-1 to report on my individual income tax return. If I withdraw this amount, how is it reported?

Sincerely,
Thao

Answer

Date:  Wed, 02 Aug 2006

Hello Thao,

You track accumulated S corporation profits on Schedule M-2, analysis of accumulated adjustment account. Distributions are reported in Box 16, under code D.

Since S corporation distributions that are not wages aren’t subject to social security tax, the IRS is claiming all distributions made to sole shareholder owners should be reported as wages.

S corporations are not simple to report on income tax returns. There are many issues that I can’t go into detail about here. Consider getting help from an income tax return preparer.

Good luck!

Mike Gray

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