What effect will S corporation distributions have on shareholders? Cash & Non-Cash

“What effect will S corporation distributions have on shareholders? Cash & Non-Cash”----->It depends; as you know, If your S corp has no earnings and profits ( I assume from when it was a C corporation), then all distributions are considered to be return of basis in the shareholder’s stock. Distributions up to the amount of basis are nontaxable. Distributions in excess of basis are capital gain. Distibution exceeding your S corp basis is capital gain UNLESS you do a shareholder loan.The S-Corp reports total income and expenses at the company level, and passes-through a share of net profit or loss to individual shareholders. Shareholder distributions are treated differently than wages because they are deemed to be a return on the investor/employee’s investment in the S corporation and not compensation for services rendered. Distributions to a shareholder must be included in the shareholders taxable income; however, the distributions are not subject to FICA tax and are not considered self-employment income subject to self-employment tax.No W-2 or 1099 need be issued by the S corp to the shareholder and the S corporation has no FICA matching requirement since no FICA tax is due. Also, by shifting dollars from wages to shareholder distributions there is a tax savings. For every dollar (up to the Social Security wage limit of $106,800) that is shifted from wages to shareholder distributions there will be a savings . In the case of the distribution of non-cash property, it can be a disproportionate distribution. Under IRS regulations, disproportionate distributions are viewed as evidence of a second class of stock. Since one of the requirements of an S Corp is that it only have one class of stock, a disproportionate distribution can invalidate the S Corporation election.So, your S corp needs to carefully monitor distributions to shareholders to be certain that there are no disproportionate distributions.However, if you, as a S corp shareholder, made a loan to your S-Corp, then you may take a tax deduction in the current year for losses in excess of your stock basis, but only to the extent you have loan basis. Adjusted basis cannot be below zero. However, adjusted basis will often result in a negative number due to some reasons .For negative basis of S-Corp stock, shareholder's stock basis is reduced, but not below zero, Then shareholder's loan basis is reduced, but not below zero.So, any excess negative basis is treated as a non-deductible loss. This excess loss is a suspended loss and carries over to future years indefinitely. The suspended loss may be deducted in any future tax year during which the shareholder has restored her loan basis or stock basis.You, as a S corp shareholder, may restore your stock basis or loan basis in several ways. The easiest way to restore basis is to make additional cash investments (to restore stock basis) or to advance additional cash loans (to restore loan basis).However, you have an amount at risk. This is the amount of money you stand to lose you’re your investments or loans to the company. Any loss in excess of the amount at risk is ALSO a suspended loss and follows the rules for suspended losses as said above. You may be subject to passive activity loss rule as long as your S corp is engaged in any business,i.e, r/e rental or etc. but you do not actively participate in the S-Corp's business.