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If the president of an S Corporation ends withdraws more distributions than their basis, how is the difference booked for tax purposes?


The BIDaWIZ Team's Answer:

The original distributions would be a debit to distributions and a credit to cash. Then when you would close the entries at year end, you would credit distributions and debit retained earnings. Please note that distributions in excess of basis is treated as a capital gain on the shareholder's personal return. It is a long-term capital gain if the S corporation stock has been held for longer than one year. This is referenced in IRC Section 1367.

The BIDaWIZ Team



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