s corp distribution


P

pharmamedical

My s corp has 3 shareholders and I was writing out 2005
profit distribution. each of my shareholders have an equal
proporttion of the company, however in july, i only wrote
the check for 2 of the shareholders and on october (this
month) i wrote another check for half this amount and
another check for half this amount so now we are even. Will
i get fined or anything for doing this since i didn't
distribute my s corp profits at the same time equally to
everyone?
 
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H

Harlan Lunsford

My s corp has 3 shareholders and I was writing out 2005
profit distribution. each of my shareholders have an equal
proporttion of the company, however in july, i only wrote
the check for 2 of the shareholders and on october (this
month) i wrote another check for half this amount and
another check for half this amount so now we are even. Will
i get fined or anything for doing this since i didn't
distribute my s corp profits at the same time equally to
everyone?
Not by the IRS for sure. Each shareholder runs a balance
on the books, and each is taxable on share of profits
regardless of whether or not money is withdrawn.

ChEAr$,
Harlan Lunsford, EA n LA
 
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J

JMc

My s corp has 3 shareholders and I was writing out 2005
profit distribution. each of my shareholders have an equal
proporttion of the company, however in july, i only wrote
the check for 2 of the shareholders and on october (this
month) i wrote another check for half this amount and
another check for half this amount so now we are even. Will
i get fined or anything for doing this since i didn't
distribute my s corp profits at the same time equally to
everyone?
I believe as long as everyone received a pro-rata
distribution for the entire year by the last day of the
year, everything is ok.
 
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C

cballard

Harlan said:
(e-mail address removed) wrote:
Not by the IRS for sure. Each shareholder runs a balance
on the books, and each is taxable on share of profits
regardless of whether or not money is withdrawn.
Just to follow up a bit here. I believe the previous
posters are correct that you are not running into any tax
problems here. There is more to the world than taxes,
however.

When you are making a distribution to the shareholders of an
S Corporation, you are technically declaring a dividend
under your state's business corporation law. You should
check the provisions of that law to see what requirements
there might be. You may need a resolution by the board of
directors, there could be a requirement that all of the
distributions be paid at the same time, there is almost
certainly a requirement that paying the dividend is only
permitted if it does not cause the corporation to become
insolvent or unable to meet its creditor obligations.

--Chris Ballard
 
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J

JMc

My s corp has 3 shareholders and I was writing out 2005
Not by the IRS for sure. Each shareholder runs a balance
on the books, and each is taxable on share of profits
regardless of whether or not money is withdrawn.
I think this is a second class of stock issue on the corp
side. On the shareholder/individual side, you have no
problems. However, if the S corporation didn't have
pro-rata distributions, the IRS would look at it as if there
were more than one class of stock, and revoke the S
election. The corporation would then be taxed as a C
corporation and you would have to wait 5 years to re-elect S
status. You are only allowed to have one class of stock to
qualify as an S corporation. I believe as long as everyone
received a pro-rata distribution for the entire year by the
last day of the year, everything is ok.
 
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