Each shareholder's distribution amount for the corporation's fiscal year should be reported on Schedule K-1 (Form 1120-S) Shareholder’s Share of Income, Deductions, Credits, etc., Line 16, with "D" as the reference code. When the shareholder follows the IRS Shareholder's Instructions for Schedule K-1 (Form 1120-S), 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 (Form 1040) Capital Gains and Losses and Form 8949 Sales and Other Dispositions of Capital Assets of the shareholder's individual income tax return.
Salaries paid to shareholders of an S corporation are reported on Form W-2 Wage and Tax Statement, as are all wages and salaries, and on Line 7 or 8 of Form 1120-S U.S. Income Tax Return for an S Corporation.
Dividend distributions paid to shareholders of an S corporation are reported on Form 1099-DIV Dividends and Distributions , 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 "E" as the reference code.
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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