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!

Remember... the Lease Guy wants you to always Share and Enjoy!!
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