Do you pay tax when you receive a distribution in respect to stock from an S-Corp?

Question

If you are a shareholder in an S-Corp and receive a distribution in respect to stock; do you have to pay any tax on it? For example, let's say you made $50,000 as part of your regular salary as an employee of said S-Corporation. That is taxed, I know. Now, let's say you receive an additional $30,000 at the end of the year in the of a distribution in respect to stock. Do you pay taxes on that $30,000 or do you get to keep it all free and clear?

Answer 1

The stock received by you is considered income, and will be taxed based on the value it had at the time of transfer to you. This value will usually be determined by the company if the stock is not publicly traded.

Once you receive the stock, you can hold it or sell it. If you sell it for a gain later on, you pay LT or ST capital gains tax depending on the holding period. If you sell for a loss, you can claim a loss deduction against other Cap Gains, or write off $3K each year against other income, until the loss is wiped out.

Bear in mind that you will likely be asked to pay FICA and Medicare taxes on the value of your stock, since it is considered as income. Your best bet is to talk to your company HR manager.

If you receive stock options, that is a whole different story. Can be discussed some other time.

Answer 2

Now, that would be very nice but, I'm not a financial advisor and I am not a tax expert but knowing Uncle Sam well, I's say that money is considered unearned income and will be treated as such, If you invest it, the maximum amoutn before tha end of the year in a Roth IRA or an annuity or CD's or something, you'd probably only pay taxes on any interest you earn on the money. If I were you I would talk to the person that does my taxes and find out what you need to do to not pay capital gains tax on the money. Otherwise, the Gvt. will get the max out of you and 'god knows they take enough. Maybe increasing your salaries or having SEP Ira's set up for the company employees to put the money into would be worth looking into. Some banks or financial companies will come out and talk to you all as a group about it. Just make sure you talk to a few different people.
A lot of banks have Financial Specialists that will sdvide you for free. good luck.

Answer 3

In general yes you do pay tax on it. But what you would be taxable on is your share of the income of the S-Corp. reported to you on form 1120S-K-1. If the corporation distributes all income and related cash you are OK, however let's say that your share of the S-Corp income is $60,000 and the manager of the S-Corp decides to only give you enough cash to pay your taxes but needs the extra cash to keep running the business. In the later situation you pay tax on $60,000 of income even though you only received $30,000 of cash. You should talk with the manager to see if they can give you an estimate of your share of the income.