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Each shareholder's distribution amount for the corporation's fiscal year should be reported on Schedule K-1, Line 16, with a reference code of "D." When the shareholder follows the IRS instructions for Schedule K-1, this amount will not flow through to his income tax return as ordinary taxable income. The shareholder is instructed to reduce his basis in the stock of the S corporation unless the distributions exceed the shareholder's basis in the stock, in which case the excess is reported on Schedule D and Form 8949 of the shareholder's individual income tax return.

Salaries paid to shareholders of an S corporation are reported on Form W-2, as are all wages and salaries, and on Line 7 or 8 of Form 1120S.

Dividend distributions paid to shareholders of an S corporation are reported on Form 1099-DIV, and on Schedule K, Line 17c.

Loan repayments to shareholders are reported on Schedule K, Line 16e, and on each individual shareholder's Schedule K-1, line 16, with a reference code of "E.".

Payments to shareholders for reimbursement of expenses should be reported on the appropriate expense line.

For financial reporting, S corporation distributions to shareholders should be reported in the "Equity" section of the balance sheet as a reduction of undistributed accumulated earnings.


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