SCorp Distribution Frequency - How Often Can I Take Money Out?

Thanks for the info! So if I'm understanding right, I can technically take distributions whenever as long as I've got the basis to cover it. But what exactly counts as "reasonable salary"? I've heard different things and I don't want to get in trouble. Also, what happens if I accidentally take too much in distributions and exceed my basis?

What's considered a "reasonable salary" depends on many factors including your industry, experience, duties, time commitment, and what similar positions would pay in your market. The IRS doesn't provide a specific formula, but they want to see compensation that reflects the actual value of services you provide to the business. If you take distributions that exceed your basis, the excess amount becomes taxable as a capital gain. This is why it's important to track your basis carefully throughout the year. Your basis increases with capital contributions and your share of company profits, and decreases with losses and previous distributions.

Does it actually help with the documentation part the original poster asked about? Like does it generate the corporate minutes or whatever you need when taking distributions? My accountant charges me every time I need that stuff drawn up.

I'm skeptical about these automated tax tools. How exactly does it know what's happening in your specific business? Does it actually connect to your accounting software or do you manually enter everything? I've tried other "AI" tax tools and ended up with generic advice I could've found on Google.

It does actually help with the documentation part. There's a feature that generates corporate minutes and resolutions specifically for distributions. You can customize them to your situation and download them as proper legal documents. Saved me from paying my attorney for something that takes them 10 minutes. For the second question, it connects directly with QuickBooks, Xero and other platforms, so it's analyzing your actual financials - not just giving generic advice. It looks at your revenue patterns, industry classification, what you're doing in the business, and even regional salary data. Way more specific than other tools I've tried.

How does this actually work? Like do you have to give them your personal info or something? Seems weird that someone else could hold your place in line with the IRS.

Yeah right. There's no way this actually works. The IRS phone system is completely broken and nobody gets through. If this service actually existed and worked, everyone would be using it. Sounds like you're selling something.

It works by using their system to navigate the IRS phone tree and wait on hold so you don't have to. You enter your phone number on their site, and when they're about to connect with an IRS agent, they call you and bridge the call. You don't need to provide any tax details to them - just your phone number for the callback. I was skeptical too! I tried calling the IRS directly three times before this and never got through - waits of 2+ hours each time before I gave up. With Claimyr, I got a call back in about 45 minutes. The IRS agent answered all my S Corp distribution questions, and I got the official guidance directly. It's not that "everyone" can get through - it's that most people don't know this service exists.

How does this actually work? Like do you have to give them your personal info or something? Seems weird that someone else could hold your place in line with the

This is super helpful! Do you use any specific software to create those corporate resolutions or do you have a template you follow? And how do you verify you have sufficient basis - just checking with your accountant each time?

I use a basic Word template that my accountant helped me create initially. Nothing fancy, just a one-page document that I update with the new date and distribution amount each quarter. I keep them all in a corporate record book along with my other important company documents. For verifying basis, my accountant and I review this quarterly. We look at my year-to-date profits, any additional capital contributions I've made, and prior distributions to calculate my current basis. Some accounting software can track this automatically, but I prefer having my accountant confirm before each distribution. Better safe than sorry when it comes to basis calculations.

Ugh I hate how states complicate everything. I'm in Florida and we don't have these issues but my business partner moved to NY and now we're dealing with all sorts of extra paperwork. Did you find any good resources for state-specific Scorp distribution rules?

I haven't found one comprehensive resource that covers all state rules. Each state's department of revenue or taxation usually has business guidance sections on their websites, but the information can be buried and hard to find. For most reliable information, I ended up consulting with a state-specific tax professional. It was worth the consult fee to get clarity. Some states like California, New York, and Massachusetts tend to have more complex requirements than others. If you're operating in multiple states, definitely get professional help because the state-specific issues can get complicated quickly.

This is such good advice! I had almost the exact same issue where my distributions were labeled as "owner draw" which caused confusion during a review since that terminology is more commonly used for LLCs. My bank was able to change how these transactions appeared in their system after I explained the situation.

This is exactly the kind of practical advice I was hoping to find! I'm just starting out with my SCorp and the spreadsheet tracking idea is brilliant. Do you have any specific columns or categories you recommend including beyond what you mentioned? Also, when you say "coordinate with your tax professional on timing," are you mainly talking about managing your overall tax bracket for the year, or are there other strategic considerations I should be thinking about?

@7206d060bae1 For my spreadsheet, I also include columns for: running basis balance (so I can see my available basis at any point), quarterly totals (helps with planning), and notes about any major business events that affected basis (like equipment purchases or business losses). Regarding timing coordination with your tax pro - yes, tax bracket management is one consideration, but there are others too. Sometimes it makes sense to take distributions in January vs December depending on your estimated tax situation. Also, if you're planning major personal purchases or have other investment income, your accountant might suggest timing distributions to optimize your overall tax picture. I learned this after taking a large distribution in December that pushed me into a higher bracket when I could have easily waited until January!

This is such valuable advice about documentation consistency! I'm actually just getting started with my SCorp and was wondering - when you mention creating corporate resolutions for even small distributions, do you literally write up a formal board resolution document each time? Or is there a simpler format that still meets the documentation requirements? I want to make sure I'm being thorough but also practical about the administrative burden, especially in the early stages when distributions might be small and irregular.

@4d9d14ebb371 Yes, I do create a formal board resolution each time, but I've streamlined the process to make it manageable. I use a simple template that's basically one page with standard language - it includes the date, distribution amount, confirmation that I'm maintaining reasonable salary, and a statement that adequate basis exists. Takes maybe 5 minutes to customize and print. The key is having a template so you're not starting from scratch each time. Even for a $500 distribution, I follow the same format. It might seem like overkill now, but when you're dealing with larger amounts later or if you ever face an audit, having that consistent paper trail from day one is invaluable. Plus, it forces you to actually verify your basis each time rather than just assuming it's sufficient. The separate savings account idea has been a game-changer too - it creates natural quarterly review points where I look at accumulated funds and make strategic distribution decisions rather than just pulling money whenever I feel like it.

This is such an important point that often gets overlooked! I've been wondering about this exact balance myself. When you mention documenting the rationale for salary level in corporate records, what does that documentation typically look like? Is it something like a memo explaining industry research you did, or more formal board minutes discussing the compensation decision? Also, are there any good resources for researching what "reasonable compensation" actually means in different industries? I've heard people mention using Department of Labor statistics or salary surveys, but I'm not sure which sources the IRS would find most credible if they ever questioned my salary level. The example you gave about $30k salary vs $200k distributions is pretty extreme, but I'm curious where the line typically gets drawn. Like if someone is paying themselves $80k salary and taking $120k distributions, is that usually considered reasonable or potentially problematic?

@297b08930051 Great point about the salary vs distribution balance! For documenting salary rationale, I typically include a brief memo in my corporate minutes that references specific data sources I used - like Bureau of Labor Statistics data for my industry and region, or published salary surveys from professional associations. I also document factors like my education, experience level, and actual time commitment to the business. For research sources, the BLS Occupational Employment and Wage Statistics is probably the most defensible starting point since it's government data. Industry-specific surveys from trade associations can also be valuable. I've also seen people reference sites like PayScale or Glassdoor for additional market data, though those might be less authoritative in an IRS review. Regarding your $80k/$120k example - that ratio would likely be much more defensible than the extreme case mentioned. The IRS doesn't have a specific formula, but they generally look at the total picture: Are you working full-time? Does your salary reasonably reflect what you'd pay someone else to do your job? Is the split reasonable given your business's profitability? An 80k/120k split for someone actively running a profitable business would probably pass most reasonable tests.