How to Record S-Corp Distribution in QuickBooks Desktop/Online – Do it Yourself

Recording S-corp distribution in QuickBooks is important for maintaining accurate financial records and ensuring compliance with tax regulations. QuickBooks provides robust features that make the process simple and allow businesses to manage and track distribution effectively.

This article outlines key steps and best practices to help businesses streamline the recording of S-Corp distribution in QuickBooks.

What is S-corp in QuickBooks?

S-corporation is designed as a legal, commercial enterprise entity and allows a company with 100 or fewer shareholders. This structure provides the benefits of incorporation while being taxed similarly to a partnership. Under S-corporation, business income, losses, deductions, and credits are passed through to shareholders, who then report these on their tax returns and pay taxes at their regular rates. Shareholders must be individuals, specific traits, estates, or certain tax-exempt organizations.

How to Set up S Corp Distribution Accounts

Setting up S Corp distribution accounts in QuickBooks entails creating specific ledger entries or accounts to accurately capture and track the allocated profits or assets designated for the shareholders or owners of the S Corporation.

These accounts are crucial for recording distribution to shareholders, as they allow for the proper tracking of funds disbursed from the company.

Follow the steps below to set up the distribution accounts:

1. First, navigate to the chart of accounts in QuickBooks.
2. Now, create a new account specifically designed for distributions.

These accounts should be classified properly to ensure that distributions are correctly reported on the company’s financial statements and tax reports. By accurately setting up these accounts, recording distributions for S Corps in QuickBooks becomes more transparent and streamlined.

How to Record S-Corp Distribution in QuickBooks Desktop?

This type of transaction involves taking money from a bank or credit card account. It can be recorded as an expense or a liability on the balance sheet.

To do this, follow the steps mentioned below:

1. Click on the Expense menu item, where you will find the list.
2. Change the term owner distribution to shareholders distribution to keep data consistent.
3. If you want to pay yourself as a contractor, there may be extra fees and setup steps.

How to Record S-Corp Distribution in QuickBooks Online?

When managing an S-Corp in QuickBooks Online (QB0), it’s important to set up your accounts to reflect financial transactions accurately.

Here’s the recommended approach:

1. Income Account: Create a specific income account for the S-Corp’s revenue. Use this account to record your invoiced amounts.

2. Equity Accounts: Maintain the Shareholder Capital and Shareholder Distribution equity accounts as you have set them up.

3. Expenses: Set up expense accounts to categorize your business expenses effectively.

Let’s walk through the process:

1. Invoice Entry: When you receive payments from clients, use the income account designated for the S-Corp’s revenue.

2. Salary Payment: Process salary payments through your ADP service. This transaction will reduce the shareholder Capital equity account and record the salary expense.

3. Distribution: Record the transaction directly from the Shareholder Distribution equity account for the shareholder distribution.

Establishing an income account allows you to generate reports on revenue specific to the S-Corp. The equity accounts monitor the flow of funds between the S-Corp and shareholders.

When running a Profit and Loss (P&L) report, the income from the designated income account, minus salaries and other business expenses, will provide a clever picture of the S-Corp taxable net income.

What is S-corp Accounting?

S-Corp records overall profits and fees at the corporate level and passes through a portion of net earnings or losses to individual shareholders. An S-Corp must maintain accurate records of each shareholder’s cash or property contributions. Their records are essential for determining each shareholder’s percentage of ownership in the company.  

Advantages of S-corp Accounting

S-Corp advantages include tax savings by avoiding self-employment taxes, better health insurance options, single taxation on income, and liability protection for personal assets.

A few advantages of S-corp are mentioned below:

• You can save money on taxes by avoiding self-employment taxes on the portion of your income not considered salary.
• You may have access to better health insurance options as an S-Corp compared to being self-employed.
• S-Corp avoids double taxation, unlike C-corporations, which are subject to it. 
• Income from a C-corporation is texted twice before reaching your bank account, whereas an S-corp’s income is only taxed once.
• Like other forms of business entities, an S-Corp provides liability protection. This means that if something goes wrong, claims can be made against the business rather than your personal assets.

S-corp Bookkeeping In QuickBooks

Regardless of its size, an S-corp must engage in regular business transactions throughout the year to comply with state and year-end tax reporting obligations. External parties like lenders or investors may also request access to the company’s books for credit assessments. Marinating the general ledger is essential, typically requiring monthly updates to manage accounting responsibilities, with frequency adjusted based on business activity levels.

The primary duty of an S-corp involves booking to monitor revenue generation through various means, including:

1. Income: Income accounting is considered the most crucial fundamental task for an S-corp. This includes revenue from service sales, rent, interest, capital gains, and asset sales. Categorizing income by type can enhance marketing strategies effectively.

2. Sale of company assets: This section is required to record separately from income and expenditure. When utilizing accounting software, any information about assets and liabilities is reported on the balance sheet. The worth of the asset is confirmed at the time of acquisition, and the worth of the asset is equivalent to the acquisition fees required to secure the property. Record the beginning price of the obligation. Assets are modified according to depreciation, and debt payments are adjusted to liabilities.

3. Cost: This includes any expenses that the company pays because of operational and legal requirements. Goods and services paid to loans, interest rates, suppliers, wages, and taxes are a few examples of items. The company utilizes accounting software, and revenue and expense transactions will be displayed in the income statement.

4. Responsible for their seats in the company: Shareholders of an S-corp are accountable for their ownership stakes in the company. The shareholder basis typically starts with the amount they invest to acquire shares. This basis increases with announced profits and decreases with recorded losses at year-end. The S-corp aims to inform its shareholders about these accounting obligations.

QuickBooks, a popular accounting software, provides specialized tools and features designed to manage S Corp distributions efficiently. These tools facilitate seamless tracking and reporting, ensuring that financial records are accurately categorized and reconciled, thus streamlining the entire process.

Frequently Asked Questions

Q 1. How do you Record Distributions to owners?

Ans. To record distributions to owners in QuickBooks, create an equity account labeled “Owner’s Distribution” or “Shareholder Distribution,” then record the transaction as an expense linked to this account, ensuring accurate tracking of funds distributed to owners.

Q 2. How do you report distributions on S Corp?

Ans. Dividend payments to S corporation shareholders are recorded on Form 1099-DIV and Schedule K, Line 17c. Loan repayments to shareholders are documented on Schedule K, Line 16e, and on shareholders’ Schedule K-1, Line 16, code “E.”

Q 3. What are the key advantages of S-Corp accounting in QuickBooks?

Ans. S-Corp accounting in QuickBooks provides benefits such as tax savings, liability protection, and streamlined bookkeeping, ensuring compliance with tax regulations and accurate financial reporting.