S corp liquidating dividend

If your partner is not active, she may just have to pay the 3.8% Obamacare tax on the ordinary business profit.Note that both of you might pay the 3.8% Obamacare tax on the long-term capital gains and dividends.In effect, in this situation, and often without realizing it, the S corporation borrows money from someone like the bank and then directly or indirectly uses this borrowed money to pay distributions to shareholders.

(If you have a high income, you may pay a 20% dividend tax and the 3.8% net investment income tax, also known as the Obamacare tax.) Exception #2: If an S corporation shareholder receives a distribution that exceeds his or her basis in the S corporation, the in-excess-of-basis distribution gets treated as a long-term capital gain and, therefore, may be taxed.Even if the corporation keeps the profits, you will still be taxed on the profits.Okay, so what we've described in the preceding paragraphs is the general rule.Note: The rules for determining whether you're active or not and when the net investment income tax applies (aka "Obamacare tax") are discussed in some detail in a blog post I did here.

Back to list of frequently asked questions If you want additional information about how to maximize the tax savings related to running a business or investment venture, you may also be interested in one of our downloadable e-books (see descriptions below).

Let us start by pointing out that, in general, the money that an S corporation pays to its shareholders isn't called a dividend. In general the distributions paid by an S corporation to the S corporation shareholders are not taxable to the shareholders.

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