S-Corp k1 Box 1 question

[ETax847]

Client has a k1 from his scorp that shows $13k in box 1 for his share of Ordinary Business Income, however, he was only paid $5k.  Is there a reasonable explanation for the discrepancy?

[jklcpa]

Client has a k1 from his scorp that shows $13k in box 1 for his share of Ordinary Business Income, however, he was only paid $5k.  Is there a reasonable explanation for the discrepancy?

 

 

Shareholder is taxed on his proportional share of the company's ordinary income and other flow through items. If the $5K was salary, then the shareholder will report the $5K as W-2 income on line 7 of the form 1040 plus the $13K of ordinary income on Sch E. If that is the case, the $5K in salary was a deduction on the 1120S to arrive at the remaining $13K of ordinary income.

 

If the $5K was a shareholder distribution, then he/she will report only the $13K.

 

Like a partnership, the shareholder reports the income from that entity whether or not he/she received any money or property as distributions at all.

[ETax847]

I believe to be the latter.  So if $5k was distributed then his basis would go up by $8k?

[Abby Normal]

Cash flow? Profits used to repay debts or buy assets? The 5 sounds like about the amount to pay taxes on the 13.