Schedule K-1 and Shareholder Distributions
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The total distributions (except for dividends) — including cash — made to each shareholder and reported on line 17c of Schedule K should be reported on line 16d of Form 1120S.
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Although withdrawals and distributions are noted on the K-1, they generally aren’t considered to be taxable income. Partners are taxed on the net income a partnership earns regardless of whether or not the income is distributed.
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After filing Form 1120S, each shareholder is provided a Schedule K-1 by the corporation. The K-1 reflects a shareholder’s share of income, deductions, credits and other items that the shareholder will need to report on their individual tax return (Form 1040).
S Corporation Taxation
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Partnerships themselves do not pay income tax. Schedule K-1 reports a partner’s share of income, deductions, credits, and distributions.
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S Corporation Shareholder Distributions should be reported on line 16d of Form 1120S.
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The penalty for failure to file a federal S corporation tax return on Form 1120S is $195 per shareholder per month.
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To file an amended Form 1120-S: File a new Form 1120-S.
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The corporation doesn’t need IRS approval to use a substitute Schedule K-1 if it is an exact copy of the IRS schedule.
Reporting Dividend Distributions and Excess Basis
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To report dividend distribution: report on line 16 D of schedule K. This draws from business income from line 1 Schedule K.
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If distributions exceed the basis of the shareholder’s stock, the excess is treated as capital gain and is reported on Form 8949 and Schedule D.
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An S corp basis worksheet computes a shareholder’s basis in an S corporation.
Charitable Contributions and Tax Treatment
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S corporations make tax-free non-dividend distributions unless distribution exceeds shareholder’s stock basis.
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An S corporation can deduct charitable contributions up to 50 percent of adjusted gross income.
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The S corporation will provide a schedule showing which charitable contributions were subject to limitations.
Ownership and Distribution Details
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S corp distributions are reported on line 16d of Form 1120S. The corporation provides a Schedule K-1 that reports each shareholder’s income, deductions, credits, and distributions. This allows shareholders to report the income on their tax returns.
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As a shareholder, your S corp income is ordinary income, not capital gains. When distributions exceed your stock basis, the excess is taxed as a long-term capital gain. Deadline for sending Schedule K-1s is usually March 15.
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Excess distributions over basis are reported on Form 8949 and Schedule D. Most S corps distribute earnings tax-free up to each shareholder’s basis. Once basis is exceeded, excess distributions are taxed as capital gains.
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S corps file Form 1120S and provide a Schedule K-1 to each shareholder. The K-1 is used to report S corp income on shareholders’ individual returns. Distributions are reported on line 16d. Loan repayments to shareholders are reported on line 16e.
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S corp owners can take money through wages, distributions, loans, and reimbursements. Profits are distributed to shareholders based on ownership percentage. Only individuals, certain trusts, estates, and tax-exempt organizations can be shareholders. An S corp is so named because it elects pass-through taxation under Subchapter S of the tax code.
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Use Form 1120-S to report income, gains, losses, deductions, credits, etc. of a domestic S corporation for any tax year covered by an election to be an S corporation. Schedule K-1 reports each owner’s share of the business’s income, deductions, credits, and other financial items.
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You will need financial records to complete Form 1120S. This includes details for operating and non-operating income and expenses. You also need company information like EIN, location, date of incorporation, and support for any tax credits.