How do transfers from my S corporation business account to my personal account get reconciled?

by Michael F. Cade, CPA, CGMA | Jan 08, 2019
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I transferred more than $15,000 from my business account to my personal account over the year. How does this get reconciled? I want to make sure I’m not doing anything illegal. It’s usually transferred as a draw. I own an S Corp LLC. 

When setting up a company, most people believe that they must choose between a sole proprietorship, partnership, cooperative, LLC, S corporation, or C corporation, but there are more options. As you note in your question, you own an LLC with an S corporation election, which provides a mix of benefits from each.

If you owned a typical LLC, net earnings from the company would pass through to your personal tax return as self-employment income, subject to Self-Employment Contribution Act (SECA) tax.

For an LLC with an S corporation election, a portion of net earnings are classified as wages and the remainder are distributed as dividend income. Wages are subject to FICA tax and other withholdings, while dividend income is excluded from FICA tax. Due to the S corporation election, neither wages nor dividend income are subject to SECA tax.
  
You should consult with a qualified tax professional to ensure your withdrawals are being classified properly and withholding and estimated tax payments are in order. In addition, a qualified tax professional can review your unique situation and ensure that you are taking advantage of all the benefits of your S corporation election.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: Michael F. Cade, CPA, CGMA, is a strategy consultant and executive coach for MFCCoach LLC in Morrisville, Pa.

Disclaimer
The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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