S-Corp Distribution Articles

How to Handle Shareholder Distributions in an S-Corp

Start with one rule: classify each owner transfer clearly, then keep enough records to test distribution taxability against **[stock basis](https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-stock-and-debt-basis)** later. In an S corporation, income, loss, deductions, and credits flow through to shareholders and are taxed on shareholders' personal returns. Whether a non-dividend distribution is taxable depends on stock basis, not debt basis. `Schedule K-1` reports the non-dividend distribution amount, but it does not tell you the taxable amount.