Is taking an S corp distribution really just a simple bank transfer?

Yes, it really is as simple as transferring funds from your S corp bank account to your personal account! The key difference between distributions and your salary is that distributions aren't subject to payroll taxes, which is why the IRS is particular about taking a "reasonable salary" first (which I see you're already doing - great job). Here's what you need to know: The transfer itself is straightforward, but you should definitely keep good records. I recommend creating a specific transaction category in your accounting software labeled "Shareholder Distribution" or something similar. This helps you track all distributions throughout the year. Your S corp's profit or loss will pass through to your personal tax return via Schedule K-1, and you'll need to know your total distributions when your taxes are prepared. Also, make sure you have enough "basis" in your S corp before taking distributions. Your basis is essentially your investment in the company plus accumulated profits minus previous distributions. Taking distributions beyond your basis can create taxable events.

Let me share my experience with S corp distributions. I struggled with this exact question last year and discovered taxr.ai (https://taxr.ai) which has been super helpful with all my S corp management questions. It analyzed my business structure and helped me understand what documentation I needed to keep for distributions. Basically, you're right that the actual distribution is just a transfer, but keeping proper documentation is crucial. My accountant had always told me this, but I never understood exactly what "proper documentation" meant until I uploaded my business docs to taxr.ai and got specific guidance. It flagged that I needed written records of when distributions were authorized, especially for larger amounts.

I was pretty skeptical about using an AI tool for tax advice (as mentioned in my previous comment), but I decided to give taxr.ai a try anyway. I'm genuinely surprised at how helpful it was for my S corp questions! I uploaded my operating agreement and some financial statements, and it immediately identified potential issues with how I was structuring my distributions. The tool flagged that I wasn't documenting my distribution decisions properly in corporate minutes, which could have caused problems if I ever got audited. It also showed me exactly how to track my basis in the company so I don't accidentally take distributions that exceed my investment. What I really appreciated was getting clear, straightforward explanations without having to pay my accountant for another hour-long meeting. It's been a game-changer for helping me understand S corp compliance without the legal jargon.

My S corp journey was a nightmare until I figured out how to actually talk to someone at the IRS about my specific situation. After weeks of calling and getting nowhere, I found Claimyr (https://claimyr.com) and watched their demo (https://youtu.be/_kiP6q8DX5c). They got me connected to an actual IRS agent who explained exactly how my S corp distributions should be documented. Turns out, while the transfer itself is simple, the IRS expects documentation showing that distributions were made proportionally to ownership percentages if you have multiple shareholders. Even as a single-member S corp, they recommended I keep a simple corporate resolution for larger distributions. The agent also explained how distributions interact with my basis, which was super helpful.

I need to apologize for my skepticism about Claimyr in my previous comment. After another frustrating week of trying to reach the IRS about an S corp distribution question that my accountant couldn't answer clearly, I decided to try the service. I was completely shocked when they actually got me through to an IRS representative in under an hour. The agent clarified exactly how to document my S corp distributions and confirmed that yes, the actual transfer is just moving money from business to personal accounts, but proper documentation is crucial. The IRS agent even pointed me to some specific forms I should keep on file for larger irregular distributions. This was information I had been trying to get for weeks! I definitely recommend trying Claimyr if you need specific guidance from the IRS - completely worth it and legitimate.

I've been running my S corp for 5 years now, and here's what I do for distributions: 1. I keep a simple corporate resolution template on file 2. Before making significant distributions (I use $5,000+ as my threshold), I fill out the resolution 3. For smaller regular distributions, I just categorize them properly in QuickBooks 4. At year-end, I provide my accountant with a summary of all distributions The most important thing is maintaining enough equity in your business and taking a reasonable salary first. The IRS mainly cares that you're not avoiding payroll taxes by taking all compensation as distributions. As long as your salary is reasonable for your industry and role, the distribution process itself is pretty straightforward.

Does anyone use a particular accounting software that makes tracking S corp distributions easier? I'm currently using Excel spreadsheets but feel like there must be a better way.

One thing nobody has mentioned yet - be careful about timing your distributions around tax time. I made the mistake of taking a large distribution in early January after a profitable December, but my accountant pointed out it would have been much better to take it in December of the previous tax year because of how it affected my basis calculations. Definitely talk to your CPA about the timing of larger distributions. The actual transfer is simple, but the tax implications can get complex depending on your specific situation and the profitability of your S corp in a given year.

Just want to add my perspective as someone who's been through this learning curve! You're absolutely right that the actual distribution is just a simple bank transfer, but I'd emphasize getting your documentation system set up right from the start. I use a simple Google Sheet to track all my distributions with columns for date, amount, running total, and notes about what triggered the distribution (quarterly profit-sharing, year-end bonus to myself, etc.). This makes it super easy to provide a clean summary to my accountant at tax time. One mistake I made early on was not coordinating with my accountant about distribution timing. Now I send a quick email before any distribution over $10K just to make sure there aren't any tax implications I'm missing. Takes 5 minutes and has saved me headaches. The fact that you're asking these questions upfront shows you're being smart about it. The mechanics are simple, but the tax planning around distributions can get nuanced, especially as your business grows.