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distributing funds from one comany to another

CL44
Level 1

My client took funds from his company to start an LLC for the purpose of buying an renting property.

how do reflect that in the company's 1120S

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16 Comments 16
abctax55
Level 15

Distribution (as you said) from S to shareholder.

'Contribution' to the LLC (is it a SMLLC?)

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CL44
Level 1

yes

 

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abctax55
Level 15

OK... then no f.1065 needed

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CL44
Level 1

how do i reflect it in the 1120S

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abctax55
Level 15

As a distribution.   What the shareholder does with that distribution is irrelevant on the F.1120-S.

Which, I'll be rude and point out, is S-corp tax prep 101.  Is this your one/only S-corp return?

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CL44
Level 1

Im sorry Im not explaining myself well.  just asked where do I reflect it.  at the year end he is left with a profit of 567,000 however he took 465,000 as a distribution. how do i reflect that so that he doesnt have to pay taxes on the full profit. 

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abctax55
Level 15

Again, not to be rude.... but you are in over your head.

Farm this one out.

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CL44
Level 1

It takes as much effort to be helpful as it is to be arrogant.  thank you. get off the forum you do not belong!

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abctax55
Level 15

Maybe, maybe not (belong).  I think the number of helpful votes I've received over the last few years indicates otherwise.

But I do know how to do S-Corp returns, and how to handle distributions.

I'm not being arrogant.  I'm 'trying' to keep your client (?) from getting into trouble with the IRS.

I'm signing off now; I wish you luck.

 

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IRonMaN
Level 15

"It takes as much effort to be helpful as it is to be arrogant.  thank you. get off the forum you do not belong!"

That sure will encourage others to help you out.  You are asking very basic stuff and if you don't know how to handle this stuff, I'll second Anna's suggestion to refer the work out.  Folks that do stuff that they shouldn't be doing tend to shoot themselves and their clients in the foot.  And for the record, this isn't being arrogant, but it would be helpful to someone that doesn't quite have the attitude that you appear to have.  


Slava Ukraini!
TaxGuyBill
Level 15

The individual client owns the LLC/rental, not the S-corporation, right?

You treat it like any other time when the client takes money out of the corporation for his personal use.  They could be buying a bunch of donuts, buying a rental property, or going on vacation.  Withdrawal for personal use is treated the same:  (1) Wages, (2) Distributions or (3) Loan to shareholder.

CL44
Level 1

thank you tax guy. I was just trying to figure out where to reflect it on the 1120s

OK here is the question.  Mabe you can help me (Instead of telling me I should know this) this year he has a net income of 565,000 (line 22) but took 465,000 as a distribution I was trying to figure out how to reflect if on the 1120s (reduce line 22) so he wouldn't have to pay taxes on it.  right now I am not sure and I would appreciate your help.  

 

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CL44
Level 1

Sorry iron man.  I was not talking to you.

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qbteachmt
Level 15

"at the year end he is left with a profit of 567,000 however he took 465,000 as a distribution. how do i reflect that so that he doesnt have to pay taxes on the full profit."

Why shouldn't he pay taxes on the full profit?

What you are describing is, he is operating a corporation that is a pass-through entity. He reports the corporate income and pays taxes on that, no matter if there is money in the bank, if it was used for new office furniture, for inventory, for taking it to Las Vegas or any other personal use.

Not taking it or taking it is not the taxable event, in and of itself as an event. A distribution is how the shareholder(s) take distributable funds beyond already being paid through payroll for their services to the business (reasonable compensation means payroll).

You didn't state the S Corp bought the property, which, by the way, is the worst entity type to have holding and owning rental real estate.

You stated he took the funds, then bought the property. Always take it in sequence.

1. Distribution

2. personal spending

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CL44
Level 1

Yea that's what thought.  I was just trying to figure out how reflect the money as passing through to the new LLC. on the 1120.  I am trying to help him.  He did this without talking to me.  He Just created an LLC  took the money from his company and deposited it in the new company's account to buy rental property.  I thought maybe there was something out there we could do I didn't know about.  I guess I asked the wrong questions because I have been told I don't know what I'm doing.    

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qbteachmt
Level 15

"I guess I asked the wrong questions because I have been told I don't know what I'm doing."

No, it was pointed out this is a very basic scenario, and that what you asked flags your level of familiarity as, "Not Very."

And asking how to avoid paying tax on the profit is another "duh" moment.

Only you know if you asked the right or wrong question for what you want to know. Basic questions are answered by learning the profession, going to continuing ed classes for certifications, going to tax refresh classes every year because rules and regulations change, new bills get passed, congress changes their mind.

"He Just created an LLC took the money from his company and deposited it in the new company's account to buy rental property."

Yes, and that's been answered a bunch of times for you. Take them one thing at a time:

Taking money = distribution (or a loan to the shareholder from the S Corp with the note payable terms documented and an intend to repay this loan).

What he did with his own money now that it his, is whatever thing that activity turns out to be. It has nothing to do with the S Corp. A Corporation is its own entity, separate from the human(s).

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