Sub-S distributions are different for each member, but treated pro rata in software. How to fix to show each members exact distributions

[CoachSteve]

4 person Sub-S with 1st year of operation in 2018.  Only one member took a distribution in 2018.  When entering the amount on Sch K in the "Shareholder Distributions and Dividends Smart Worksheet" it automatically allocates the amount to the 4 members in a pro rata share.

Is there a separate place to enter non-pro rata distributions (cash only) and then enter directly on each member's K-1?  Or, do I need to override the distributions on each K-1 separately?

Steve P.

[IRonMaN · Accepted solution]

Coach - the other three players need to be in the game too.  You can't have only one player take a distribution and leave the rest of the team sitting on the bench ------------------ that kinda kills your sub S election.  You might want to think about talking to the shareholder about drafting a note payable back to the corp for that amount until you can get things straightened out in 2019.  As a side note, hopefully everyone is taking out some wages before they think about taking out distributions.

[TaxGuyBill]

So as Ironman pointed out, distributions in a S-corporation are *REQUIRED* to be equal.  If they aren't, the S-election is voided and it becomes a C-corporation.

[Accountant-Man]

If I could mark Ironman's answer as helpful more than once, I would. UNLESS YOU WANT TO TERMINATE THE S ELECTION, ALL DISTRIBUTIONS MUST BE PRO RATA.

Coach, please open a book on S corps.

[abctax55]

Or attend a webinar (or 3).

[CoachSteve]

I did some research and discovered that while distributions are required to be proportionate, they don't have to all be made at the same time.  In our case a member who was leaving the business took money out of the business (in excess of his salary) before year-end.  The other members took their share in 2019 (when cash was available).  This is perfectly legitimate.  So my question stands:  is there a separate place to enter non-pro rata distributions (cash only) and that carries to each member's K-1?  Or, do I need to override the distributions on each K-1 separately?

[sjrcpa]

When I have this situation I tend to book Distributions Payable for the 2019 portion. Then show all of the distributions-actual pd in 2018 and amt to pay in 2019 on the 1120S.

[poolcleaner]

Susan, would that work for a cash basis S Corp?

[sjrcpa]

I think so.

[Accountant-Man]

It should work.

[poolcleaner]

Thank you both.  I don't have anyone who has done this but just in case........

[sjrcpa]

It is usually a one off for me. I tell them you messed up distributions and they fix it ASAP.

[abctax55]

I've resorted to it once.  Then, just like with missed W-2, my client either cleans up their act or I send 'em on their way.

[sjrcpa]

ditto.