Discussion:S Corp Distributions-Are frequency of payments an issue?
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Discussion Forum Index --> Basic Tax Questions --> S Corp Distributions-Are frequency of payments an issue?
Discussion Forum Index --> Tax Questions --> S Corp Distributions-Are frequency of payments an issue?
| 8 March 2008 | |
| The subject of officer wages vs distributions has been covered extensively. But in my search I couldn't find any discussion regarding the frequency of payments. A CPA who is auditing a GL client of mine told me that an S Corp Distribution should only be paid out once at the beginning of the year to distribute prior year profits; not several payments throughout the year. Client pays $10k officer payroll monthly and about $5k monthly distributions. Any thoughts would be greatly appreciated. | |
| March 8, 2008 | |
| I sure hope he's wrong! I've never seen anything on this at all in the law, but have wondered the same thing about whether I jeopardize my success in calling them distributions when they are frequent. | |
| 8 March 2008 | |
| If anyone has seen or heard anything that frequent distributions could present a problem, please yell out. Thanks. | |
| 8 March 2008 | |
| Never heard of such a thing. Cash flow reasons alone would make it impractical - what if all of the profit were tied up in inventory? | |
| 8 March 2008 | |
| I agree Kevin. I think it would be impractical for most small companies to pay a huge lump-sum to the officers at one time. The CPA said he read in one of his "CPA Journals" that the IRS could see these regular monthly payments as payroll and reclassify them as such. I don't agree with him and I don't think the wages are low - the distributions are approx half of the payroll amount.
Of course, he couldn't back this up with any regs or code. Just his "professional opinion". Thanks for all your thoughts! | |
Bottom Line (talk|edits) said: | 9 March 2008 |
| Why would you think wages of $120,000 are low? Don't know the type of work but this would be "reasonable" for most. AND SS is maxed out so worst case IRS says more salary is needed, the only difference would be Medicare. Probably wouldn't happen. I also have no problem with monthly draws. Why would you want all that money sitting in the bank all year. Publicly traded companies distribute dividends quarterly. | |
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