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YogiWatcher
09-07-2007, 12:36 PM
Hello,

For the single member LLC (elected as S-Corp for taxation purpose), having no employees, what is difference between Distribution, Owner's Draw, & Bonus?

Is there any tax advantage, or accounting simplicity in taking money out of my company, using any of those three?

YogiWatcher
09-18-2007, 03:46 PM
Hello,

Any idea about this?

jathieme
09-20-2007, 08:09 AM
Here's how I understand those terms:

Distribution - S-corp owners use this equity account for payments they make to themselves that are not Wages or Salary.

Owner's Draw - S-corp owners should not have this account in their Chart of Accounts. It is an equity account for sole-proprietors.

Bonus - this is an Expense that is taxed as payroll, similiar to Wages and Salary.

YogiWatcher
09-20-2007, 11:23 AM
Thank you Jennifer,

So it seems that for S-Corp taking money out of S-Corp is not really a Owner's Draw but is distribution.

Please correct me if I am wrong. Distribution amount is not taxed when withdrawn from S-Corp, but that amount is taxed on individual 1040. So from tax perspective (i.e. individual 1040) what is difference between Distribution and Bonus? To me there appears no difference - except that in case of bonus, tax is withheld and in case of distribution, tax is not withheld (but is expected to be paid as 1040ES. At the end, however, it makes no difference. Am I correct?

I am an only employee (and owner of S-corp). If I have to take money out of S-corp (other than salary), what is best (or correct) way - distribution or bonus?

Joe Williams
09-20-2007, 02:29 PM
A bonus is used for Employees. If the person is not an employee, no bonus.
Since this is an S-Corp , just issue another distribution.

lisa_mn
09-20-2007, 02:56 PM
Remember that as an s-corp you should be paying yourself a "reasonable" salary with payroll taxes withheld and paid.
Any money you take that doesn't run through payroll would be a distribution.

YogiWatcher
09-20-2007, 03:46 PM
Thanks all,

I am paying myself reasonal salary, I just need these additional distributions about 4 times a year only to cover my 1040ES payments.

YogiWatcher
10-22-2007, 03:00 PM
Now after doing some more study, I am clear on what is Bonus. I did not realized that employee pays Federal tax, Medicare tax and Social Security Tax on bonus as well. For some reason I was thinking that only federal tax applies to bonus.....and hence was the confusion.

Now....what's the difference between Owner's Draw and Shareholders Distribution? Do they mean same?

David Baker
10-22-2007, 03:47 PM
Yogi Watcher,

Jennifer summed it up nicely in her response.

What may be confusing you is the S-Corp income is taxed to the shareholders whether it is drawn out or not. You are required to take a reasonable salary so that at least that portion becomes subject to FICA.

Example -
If your S-Corp has $100k income, $50k salaries; $30k other expenses; you will still pay tax on the remaining $20k as dividends, whether you draw it out or not.

--David.

YogiWatcher
10-22-2007, 04:05 PM
Thank you David and Jannifer.

Source of my confusion was that on internet there are some discussion where people talk about Owner's Draw from S-Corp.

I think it is clear to me now.

cpa2896
10-28-2007, 10:43 AM
Yogi Watcher,

You may also need to consider that distributions to shareholders of the S-Corp's profits are not typically taxable, any distributions in excess of the shareholder's basis would be taxable.

Bill

lisa_mn
10-28-2007, 02:15 PM
Excellent addition Bill - thanks!

YogiWatcher
10-28-2007, 06:55 PM
Sounds like something that I need to pay attention to!!

But I don't have any clue what you are trying to say!! What is shareholder's basis? I am the only shareholder in my S-Corp. Can you give me some examples?

mySBSTeam
10-29-2007, 03:40 PM
Sounds like something that I need to pay attention to!!

But I don't have any clue what you are trying to say!! What is shareholder's basis? I am the only shareholder in my S-Corp. Can you give me some examples?

To make life easy for you pay yourself a salary and withhold taxes. Make it reasonable, but not a lot. Everything else, take an owner draw, shareholders distribution, etc....... It's all the same thing. In English what this is money you as the owner take out of your company tax fee.

It's not totally tax free because at the end of each year you are personally taxed through a K-1 all the profits of the company. Revenue - Exp (including your salary) = Profit. That profit becomes your basis in the following year.

Basis means what you have in the company. Each year the companies profits add to your basis and you can withdraw, distribute, etc...... Any money to you as long as you have basis in the business.

I hope this helps and if not let me know. If you need help at yearend with your taxes, tax planning, or even during the year with accounting visit our website (http://www.mysbsteam.com)to see if we fit your needs. I'm sure we will.

Good Luck

YogiWatcher
10-29-2007, 04:01 PM
Now I understand. It was basically same as my understanding, but you put it in different words...

Thanks

mySBSTeam
10-30-2007, 06:40 AM
Now I understand. It was basically same as my understanding, but you put it in different words...

Thanks

You are more than welcome. Good Luck to you.

ayrukhot
11-16-2007, 11:37 AM
Hi everybody,

I am new to the forum and not sure if this is the right place to post my question, so please forgive me if it's not.

I found this thread to be very educational and similar to a question I have - maybe Lisa or David or someone else could help me answer this:

We have a 3 member LLC company, one person quit his job and working full time, but his payment for work is deferred until the future. To bring in some numbers, let's say each member has 50K owner equity, totalling 150K owner equity. Member 1 is the full-time member who in return for his work gets a deferred payment of 10K per month. Nobody else is paid anything (new business).

Should we record this deferred payment in QB every month, or only record when the person gets paid? If record every month, how should we record it, and should it be treated as distributuion, salary or bonus? How should we record the payout? New to QB and accounting, so please help and if you could use the example provided that would be great.

Thanks,

Alex

lisa_mn
11-17-2007, 01:09 PM
The three of you should seriously consult with a tax professional to make sure that all understand and are in agreement with the arrangements.

ayrukhot
11-19-2007, 12:16 AM
We are in the process trying to hire an accountant that help us sort this out, but what's the tax difference between treating the pay as a paycheck, bonus or distribution? I understand everything except distribution has FICA applied to it, so what would be a reason not to treat it as a distribution? Technically speaking, we are thinking of handling it the following way:

every month salary gets tagged on to the full-time partner's equity account, coming from retained earnings (since basically he is getting paid from the company profits)

when the partner is ready to get paid, we will issue a distribution that will reduce his equity account by that distribution amount.

Is this acceptable from a technical/QB point of view?

Thanks,

Alex

lisa_mn
11-19-2007, 07:43 AM
For right now, make a journal debiting an expense account called Partner x deferred pay and credit a liability called deferred compensation or accrued expenses.

Then sit down with your accountant to figure out if it's best to file as an s-corp or partnership (there is no federal form for LLC), and depending on that choice, there are different options (draws, salary, guaranteed payments) for taking money out with different tax ramifications.


Good luck!

basia
03-23-2011, 04:24 PM
Hello All the experts,

What is the right GL to put "owner distribution" in QB?

Credit?
Debit?

Thank you!

Joe Williams
03-23-2011, 06:03 PM
Use Write check and for the account select "owner distribution".
The check will credit the bank account and debit "owner distribution".