A Shareholder Distribution is typically created when you take profit out of your company by transferring funds to your personal checking account from your company checking account.

It is important to understand that a shareholder distribution is also created when business income is received in a personal account.

If you notice that the total shareholder distributions shown on your balance sheet seems higher than expected, consider whether you received any business income in a personal account after your s-corp books start date (if you are unsure of your s-corp books start date, you can request this information by emailing [email protected]).

For example, when building your books, your onboarding accountant may have worked with you to include business activity from a personal account - by either uploading a spreadsheet or temporarily connecting your personal account to the accounting software. In these cases, your onboarding accountant eventually closed out the temporary personal accounts used during the book rebuild, and as a result, a shareholder distribution (or contribution) was created on the balance sheet of the LLC.

Shareholder distributions are also increased when you accidentally make a personal purchase on a business account.

The good news is that shareholder distributions are usually not taxable, assuming that you have enough shareholder basis. However, before you're able to build up enough shareholder basis, excessive shareholder distributions can result in negative shareholder basis, which can trigger capital gains tax. For more information on shareholder basis, refer to this article.

In general, Collective recommends following these Bookkeeping Best Practices.


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