S-Corp Taxes Explained
What happens to the remaining net income of an s-corp after paying out owner’s salary? For instance, if an s-corp makes $100,000 net income after deductions, and then pays the owner a $50,000 salary, what is done with the remaining $50,000 of corporate income?
Answers:
At the end of each year, all S corporation profits are allocated to the corporation's shareholders. Even if you and your fellow shareholders choose to leave some or all of the profits in the corporation, taking nothing as distributions or salaries, you will still be required to pay tax on those profits. In technical lingo, an S corporation is not permitted to have any retained earnings. This is different from a regular corporation, which can retain—and pay taxes on—its earnings.
However, S corporation shareholders may be able to deduct 20% of their business income with the pass-through deduction established under the Tax Cuts and Jobs Act.
Gary Hulett
At the end of each year, all S corporation profits are allocated to the corporation's shareholders. Even if you and your fellow shareholders choose to leave some or all of the profits in the corporation, taking nothing as distributions or salaries, you will still be required to pay tax on those profits. In technical lingo, an S corporation is not permitted to have any retained earnings. This is different from a regular corporation, which can retain—and pay taxes on—its earnings.
However, S corporation shareholders may be able to deduct 20% of their business income with the pass-through deduction established under the Tax Cuts and Jobs Act.
Gary Hulett
