Tax question: left s-corp in middle of the year w/no distribution, then get K-1

[Foggy_Goggles]

You'd think we'd have a CPA in the hizzy helping you our?

I'm just spewing what I know plus some Google.

I'm thinking through your perspective. Historically, was your comp biased heavily towards wages? Or did you get a large year end Dividend?

Is this tax due abnormal? In the past, what income stream would you use to pay the tax? Did you receive a proportional share of this or not?

Sent from my Turbo 850 Flatbrimed Highhorse

[Not DJSapp]

Not a CPA, but was/still kinda am a part of an S-corp for the last 17 years

Profit is profit in the IRS's view and they want their piece. Doesn't matter if profits were distributed to shareholders or if they were spent on hookers and blow and the xmas party.

My $0.02 is that this was an oversight when they made their year end distribution and your name was no longer on the list. Then the accountants sent out the K-1's as they should, saw that you left in August and pro-rated your percent ownership for the year. I see two roads to a positive outcome for you:

1. The CFO and accountants talk, and they send you a late check for your share of distributions (not likely, because they already overpaid everyone else so it's a loss to the business)
2. The CFO and accountants talk, and they send everyone revised K-1's based on year end percentage of ownership. This raises up everyone elses tax liability and reduces yours, but they likely were given distributions based on that percentage. Probably the easiest path.

The path of fighting involves you proving that they made an inequitable annual distribution to shareholders. As a shareholder, you have a right to an equitable distribution based on number of shares held, but since you left before said distribution, you should have been bought out for your percentage of estimated profit. Sounds like you didn't have that worked out when you left, and maybe there's an argument here to prove the company only performs annual distributions and therefore you should have recieved something. If they actually did give you $500 as a buyout when you left, that might have been them doing a CYA move and they can say they clearly did buy you out for realized profits to that date and profits just got better after you left, leaving you holding the bag for all the profit they realized at year end. It's a dick move, but entirely possible in the cutthroat world of dental accounting. Reread your exit paperwork.

Edit: and if you need a to dangle a treat out in front of the CFO, tell them to look into the "Ongoing research activities" tax credit for S-Corps, box 13M. That loophole is quite wide, with broad definations of what can be written off as "Research". Then go back through the last 4 years and revise the companies taxes with a fuckton of credits to everyone's taxes. And these are credits against your tax liability, not your AGI, and they roll over if you can't use them all in a single year. I had a personal federal tax liability of 0% for over a decade due to this loophole and the line of work I'm in. You're welcome.

[Core Shot]

You don't think it makes a difference whether that taxable income was paid to me or paid to someone else? Interesting!

CPA tax related? No. You get the imputed income. There’s a possibility they didn’t pro rate properly. But the CPA issue is just the math.

Legally were you screwed over? Yes.

Will you sue them? Not likely it seems. Not to mention litigation sucks. I’ve walked away from a lot of money by hating courts and litigators.

Negotiate. Cry. Plead for mercy.
Or sue.

If it’s a two person s corp. and the other guy steals the profits. Yep. You still pay tax.

[neufox47]

I think you understand this. You owned a corporation and that corporation had taxable income. It makes no difference if it was paid to you (dividend), paid to someone else or sits in the corps checking account.



You "selling" your shares for zero has nothing to do with it. You could have, sold your shares back for real money, asked for a special dividend, negotiated severance and so in.

While I’m an accountant I’m NOT a tax accountant, so completely out of my element (this is like an insurance plaintiffs attorney getting asked a question about a criminal case). However I think Foggy is correct. You owe for the businesses profits even if you didn’t receive them personally. No different than if you were still a shareholder but left the profits in the S-corp. This should have been worked out in your exit agreement / documents.

[Crusty]

S-Corp shareholder distributions are required to be paid pro-rata. If you got $500 that means the firm paid out $7,000 ish in total. You can run that through your BS'ometer.

An exception applies if you agreed to a closing of the books upon your departure but you would know because your consent was required.

You will not receive a 1099 DIV as these are not dividends.

This would be a good year to have your taxes done professionally if you don't already do so. For example you may be able to take a loss on your S-Corp shares.

[billyk]

You really should get a CPA to advise you on this. File an extension and deal with it when you can get an appointment.

[Cruiser]

You don't think it makes a difference whether that taxable income was paid to me or paid to someone else? Interesting!

I had a similar situation and my experience was that the above is correct. Your liability has nothing to do with how much money you received. Instead it has to do with how much profit the corp made and what your percentage share of ownership was.

[Joey Joe Joe Junior Shabadoo]

This should have been worked out in your exit agreement / documents.

This was my wife's advice, along with getting an accountant. She does accounting and finance for real estate development and deals with investors and their s-corps on a daily basis. She said, like others here, that you're on the hook for the taxes either way, but only for profit accrued during your time in the corp, not the whole year. And as to whether you get any distribution of the profit you're being taxed on, that would be outlined in your exit agreement.

[fastfred]

invest in a weed business smoke your profits

or just hire someone pay them money and let them figiure it out and you don't have to worry about nothing
totally worth tens of thousdands of dollars