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Is Income on an S Corporation K-1 Considered Earned Income? Such income is investment income, thus not subject to self-employment tax, and it isn't taken into account when calculating a tax credit that uses earned income in its calculation
S corporation employees, shareholders and corporate officers Payments made by an S corporation to its president and sole shareholder were wages subject to employment taxes, not distributions or loan repayments Prior transfers by the shareholder to the corporation were capital contributions and not loans
Are S-Corp Distributions Reported on K-1? (w Examples) + FAQs Every S-Corp must file Form 1120-S with the IRS, and every shareholder must receive a K-1 showing their share of income, losses, and distributions The K-1 is the bridge between corporate taxation and personal taxation
W-2 Salary vs. Distributions vs. K-1 for S-Corp Owners As an S-Corporation (S-Corp) owner, understanding the distinctions between W-2 wages, distributions, and K-1 profits is essential for managing your tax obligations and business finances
Paying Yourself the Profits: Understanding S Corp Distributions As a shareholder of an S Corporation, your income is a form of non-dividend distributions, so its not subject to capital gains tax For tax purposes, distributions are part of your ordinary income
Advising S corporation clients on reasonable compensation S corporations are required to compensate shareholder-employees with reasonable wages for their services before making distributions The wages paid are deducted from the S corporation’s income
The Rules of S Corporation Distributions | RCReports Distributions up to the shareholder’s basis (their investment in the S Corp) are considered a tax-free return of capital However, if distributions exceed the shareholder’s basis, the excess is generally taxed as capital gains, not as ordinary income