| “I am at a loss as to what to put, if anything on schedule K-1 line 18 for Form 1120S.”==========> There is no line 18 on Sch K1 of 1120S . You mean line 18 on Sch K of 1120S??????????? On Sch K of 1120S line 18, you need to put the result by combining the amounts on lines 1 through 10 on Sch K of 120S and subtracting the sum of the amounts on lines 11 through 12d and 14l. The IRS requires payment of "reasonable" wages to the S corp shareholder operating the business. Simply put, you must have compensation that's fairly related to the value of your services to the corporation. FICA tax is paid on your wages but not on distributions of profit., then, UNLESS yu have an EE wage, or profits, you, as a Sh/Owner, do not need to pay yourself a W2. Amazingly, some tax advisors suggest officers active in operating an S corp that is experiencing net operating losses should still pay themselves a "reasonable" wage. This line of thought has never made sense to me. I believe most new S corps losing money pay no officer salary;as long as the S corp isn't paying money out to shareholders as employment-tax-free distributions, salaries do not need to be paid. The IRS states, “: An S Corp must pay reasonable compensation (subject to employment taxes) to shareholder-EE(s) in return for the services that the EE provides to the corporation, before a non-wage distributions may be made to that shareholder-EE. So, once a reasonable wage is paid, amounts in excess of that can be distributed without paying employment taxes
“We well under 250K in assets/cash (very new Scorp) and according to IRS form 1120S Instructions I don't need to fill out Schedule L, M-1 or M-3. “============>UNLESS the corp’s total receipts and its total assets at the end of the year MORE than $250,000, If so, the Corp would not have been required to complete Sch L & M-1 and M2;
“When I add far right columns of I get the amount say 10K from line 1-10 (only really $ inline 1). There is nothing in columns 11-14. Distributions are listed in 16d same as Line 1 (10K). Which I though meant there was no income/loss... leaving Line 18 blank. But if I don't add the distribution it states I have an income of 10K?”============>It depends on the situation. UNLESS your distribution exceeds the balance in your AAA acct and your stock basis in the S corp(I assume that you have no loan basis in the S corp).You MAY pay yourself distribution as a shareholder of the S corp. These distributions of profit are not a business expense. No taxes are deducted. Your distribution should not exceed accumulated profits, your stock bais or basis in AAA acct. If it does, then you need to report capital gain on your 1040. An S corporation shareholder gets taxed on his or her share of the corporation’s profits. Distributions that an S corp makes to shareholders are, in most cases, irrelevant.However, in one special case, a distribution can create tax liability for a shareholder; however, you need to understand the concept of basis. “Basis” refers the amount you’ve invested in your S corp stock.If you purchase some shares in an S corp for $10K, at the point you make the purchase you have $10K of basis in your stock.If over the course of the first year, your share of the corporation’s profits equals $20K, that $20K if reinvested increases your basis from $10K to $30K.If the corp doesn’t make any money in the second year but distributes $16K to you, that distribution decreases your basis to $14K;$30K-$16K .So here’s why basis is important. If your S corp makes a distribution to you that’s in excess if your basis, the excess amount is treated as a capital gain. For example, if you have $14K of basis in your S corp stock and the corporation makes a $15K distribution, the extra $1K gets treated as capital gain.
Bottom-line: While distributions usually don’t have any tax effect on shareholders, a distribution can in special cases create capital gains. (One common situation where this occurs, by the way, is when a small corporation has used Section 179 depreciation to create large depreciation deductions which wipe out lots of basis.)
NOTE:just for a reference, An S corp treats a distribution of appreciated assets as a sale. An asset is machinery, equipment, furniture or any other physical property. Rising market value equates to an appreciated asset. Therefore, the IRS assesses a capital gain in accordance with the shareholders' proportion of ownership, even if only one person receives the property.
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