“How do I record this on my schedule K1 (Form 1120S)?”===============> An S-corp is a "flow-through" entity which means you, as a SH/EE, pay taxes on your pro rata share(97.9%) of the S-corp's income reported on 1120S line 21, regardless of whether the income is actually distributed to you. This income is considered investment income, and self-employment taxes are not imposed. However, you, as a shareholder/EE that works for the S-corp, may(possibly/probably) be required to receive wages reported on 1120S line 8 as an EE of the corp. The distribution of $36K reduce your basis in the S corp in AAA acct and stock/loan basis. All distributions are considered to be a return of basis /capital in the shareholder’s stock. So any distributions up to the amount of basis are nontaxable. Anything over the basis is a capital gain and need to be reported on SCh d/form8949.SO, Distributions do NOT go on Line 1 of either K or K-1, nor does it go on BOTH lines 2 AND 7 of the M-2 - though it does go on Line 7 of the M-2.n Sch k1 of 1120S line 1 PART 3, you need to report 97.9% of the ordinary biz income(loss) reported on 1120S line 21 .The remaining profit of $12K is added to your basis in AAA and stock basis. |