Category: Distributions

Picture of Page 1 of Form 1120S.

Income Tax Effects of Inventory Distributions from an S Corporation

In this article, I will walk through the tax implications that result when a shareholder of an S Corporation withdraws inventory from the business for personal use. Because a withdrawal of inventory from the business by the shareholder represents a transfer of value from the business to the owner, we view this transaction as a shareholder distribution. The below analysis...

Picture of Page 1 of Form 1120S.

Are S-Corp Distributions Required to be Proportionate for all Shareholders?

Small business owners often wonder whether it’s acceptable to make disproportionate distributions to a shareholder of an S Corporation. The following example paints a picture of a situation where business owners may consider this possibility: Tom and Jeff own an S Corporation called TJ Engineering as equal shareholders (i.e. each shareholder owns 50% of the stock of the S Corporation)....