J.K. Lasser's Small Business Taxes 2022

CHAPTER 25Distributions from Your Business

1. Distributions from a Sole Proprietorship
2. Distributions from a Partnership
3. Distributions from an S Corporation
4. Distributions from a C Corporation

Let's face it. One of the main reasons you're in business is to be able to get something monetary out of it. From a tax perspective, distributions to you from your business may or may not be taxable, and if taxable, handled in various ways. It depends on the type of your business entity and other factors. Some of the rules for distributions are very complicated. The following is merely an overview of the tax treatment of distributions.

Distributions from a Sole Proprietorship

As a sole proprietor, you pay tax on net income from the business, regardless of whether it's distributed to you. When you take money from your business bank account, it isn't taxable to you.

Distributions from a Partnership

As in the case of a sole proprietorship, you pay tax on your share of net income from the partnership, whether or not it's distributed to you. In determining whether or to what extent a distribution is taxable to you, keep both your inside basis and outside basis in mind (explained in Chapter 3).

Current Distributions

These distributions reduce your capital account but don't terminate your partnership interest. A distribution of cash or marketable securities is tax free to the extent of your outside basis. If the distribution exceeds your outside basis, the excess is taxed as capital ...