title>Tax Guru-Ker$tetter Letter Wizard Animation

                 

Tax Guru-Ker$tetter Letter
Friday, December 09, 2005
 
S Corp Dividends

Q:

Subject: S corp

HI, I have a question.

When an S corp declares dividend, is dividend must be paid or declared before Dec 31, 2005 to show on the books or the dividend can be paid and declared after the year end.
 
What happens to dividend declared to shareholders, are they taxed personally, does it show up on the K-1, ,
thank you

A:

In a nutshell, dividends from corporations that have always been S don't have any direct tax consequences other than to change the shareholders' capital accounts and personal cost basis in the corp.  Shareholders pay tax on their K-1 income whether or not any is paid out.  S corp dividends are not reported separately on the shareholders' 1040.  Likewise, dividends paid out do not reduce the corp's taxable income.

It does get a little messier for a corp that converted from C to S and had previously taxed retained earnings. 

Your professional corporate tax advisor should be working with you on this.

Kerry Kerstetter

Follow-Up:

Thank you
 
 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/09/2005 09:29:00 PM Send this post:

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