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I have an LLC taxed as an S Corporation. I was not on payroll but paid myself cash. Do I report this as dividends and if yes what kind of dividends should I call it? Is it non-qualified or should I give myself a 1099 misc or both 1099 div and 1099 misc?


Expert Linda Burroughs's Answer:

The cash payment could be catorgorized as a dividend but this is not recommended.  Dividends are taxble to you but not deductible as an expense by the corporation.  You pay tax on the net profit from the business and the dividend received.  This results in double taxation.  A form 1099-DIV would be needed


The distribution could be catogorized as a "Owner Draw" from corporate profits.  this reduces your basis (equity) in the business.  This would not be an expense to the business.  You pay tax only on the net profit form the business.  No 1099 form is necessary.


The distribution could be catorgorized as guaranteed payments to owner.  This would be an expense to the business.

This would not result in double taxation, but you would pay social security tax on the guaranteed payments.  No Form 1099 is needed.  The payment would be separately stated on  The Form K-1.


Hope this helps.

Linda Burroughs, CPA


25 yrs experience

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