An S-Corporation Tax Question

By | February 1, 2008

Today’s topic has to do with S Corporations and taxes.

This is more of a ‘corner me at the party’ type topic, but since I work in financing and leasing (hence the clever “Lease Guy” moniker), I have to have a broad base of knowledge in regards to taxes and the like (well, I like to think so, anyway.)

I get asked this particular S-Corporation question a lot, and I do know the answer, so I’ll share it now (also remember, March 15th is the corporate tax return due date.)

QUESTION: Are distributions from an S Corporation (sometimes called a Sub-S) taxed as a dividend (15%), or are they simply taxed at the shareholder’s marginal tax rate?

ANSWER: S Corporation distributions are not dividends. Instead, for tax purposes, they are considered drawings from the shareholder’s capital account.

An S Corporation’s income (and expenses) are passed-through the S Corporation to the shareholders, and generally reported on form 1040 (much like a Partnerships income.) This means shareholders are taxed on the corporation’s income regardless of whether they receive a distribution.

I hope than answers the question.

Ok, before I go, I want to comment on the Super Bowl. This should be a good one & we either have history being made if the Patriots win or a nice underdog story if the Giants win. My team didn’t make it (I’ll keep them to myself… it was a tough year), so I don’t have a rooting interest except that I hope it’s a good game (after years of duds, the last few Super Bowls have been good, so here’s hoping it continues.)

See you next week!

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