Guide

S corp bookkeeping: salary, distributions and the records the IRS expects

How to keep books for an S corporation: reasonable salary through payroll, distributions, officer health insurance, the accountable plan, and the balance sheet items that matter.

S corp books have one job the Schedule C version does not: proving that you paid yourself a reasonable salary before taking distributions.

Salary versus distributions

Salary goes through payroll with withholding and payroll taxes. Distributions are transfers to you outside payroll. Both are recorded, on different lines, and the ratio is what the IRS looks at. In ProfitBooks payroll runs are categorized as officer compensation and payroll tax from the payroll summary; transfers to your personal account are distributions.

Health insurance

Premiums for a more-than-2% shareholder are run through payroll and reported on the W-2, then deducted on the 1040. Do not just expense the premium.

Accountable plan

Reimburse yourself for home office, mileage and phone under a written accountable plan. The reimbursement is a deductible expense to the corporation and not income to you.

Balance sheet items

Shareholder loans (in either direction), retained earnings, and the basis your distributions draw down. Your accountant tracks basis; your books need to make the distributions visible.

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