How to Keep Your S Corp Distributions Non-taxable
One of the benefits of an S corporation is that shareholders can generally take distributions without paying additional tax.
But there is an important limitation:
S corporation distributions are tax-free only to the extent of the shareholder’s stock basis.
If distributions exceed stock basis, the excess is generally treated as capital gain under IRC §1368.
Why Your Marginal Tax Rate Isn’t 24%
Most people quote their marginal tax rate from the federal tax brackets. But your true marginal rate is the sum of several layers of taxes—federal, state, payroll, and sometimes even city. And your marginal rate can differ depending on whether the income is earned (salary or self-employment), passive (investments), or from a business.
