Let's take a bit at a time. This is not stated correctly:
"took a lot of owner draw (over $100K), did not take distribution."
There is no such thing as Owner, for a corporation. This person is the Shareholder, but the corporation is its own entity. The differentiation matters, because you are going to want to understand that the corporation is its own entity. This is how it differs from him operating his business as a Sole Proprietorship.
There is no Owner, so that means there is no such thing as Owner Draw. When shareholders remove funds from the Corporation (as if it is a draw), you are describing either Distribution or Loan.
Next: "Treated the owner draw as a loan to the shareholder. Shareholder will provde a promissory note to pay the loan. Good or bad idea? If bad idea, what is the best way to handle it?"
Why treat this as a loan? If there were multiple shareholders, any distributions would need to be made pro rata to shares owned. This is the only shareholder, so why not treat it as distribution?
This is the important component: "made a net profit of 15k." and "Paid himself a salary during the year,"
Because now we start to get into important issues for "Reasonable Wages" for payroll. The IRS wants to see payroll for the shareholder-employee commensurate with services performed and the business operations. The taking of huge distributions ($100k) and Tiny Payroll ($15k) is a red flag. The IRS has the right to recharacterize all taking as an attempt to bypass payroll and as an attempt to avoid payroll taxes. That can result in penalties and the recharacterization will mean payroll taxes on the disbursed funds are overdue, so late fees would be included in the assessment.
"Does the profit of 15k gets taxed on the Shareholder's 1040 whether he/she received distribution or not?"
Yes; even the $100k is part of what is taxed for the year, if that is from Profit.
Let's review how Equity works (as a simplified review):
Taking Payroll will be an expense to the corporation.
The income and expense through the year result in Net Income at year end, which contributes to Equity as Retained Earnings.
Taking distributions is taking from Equity; that means you are removing asset (money) that is Equity from this or prior years. It is all already taxed (if prior years') or being reported and taxed for the same tax year you withdraw it. But that Taking is not the taxable event. Leaving all the money in the business or using it to buy inventory or equipment or buildings doesn't change the Taxable status of the money. As a Pass Through Entity, the money is taxed right away by having the shareholders report the corporation's activity as their share of it, in other words, no matter what happens to it.
"For the Shareholder's 1040, where do I enter the 15K (undistributed profit) in Proseries? The Part II of Schedule E are all hard coded fields."
You don't. All of this is the Corporate Activity, and it's all part of the 1120S.
I recommend you get a mentor to help you, and the client needs some guidance for how to more correctly manage the corporation's finances.
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