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s-corp allocation of profits and losses

RichardS77
Level 3

In an s-Corp how do you allocate ownership interest  at 50 50 but a different allocation for  profits and losses?

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qbteachmt
Level 15

Perhaps you got some guidance from someone that has an LLC, and not an S Corp. This is pretty vague, so let's review:

Let's pretend that you buy 100 shares of Ford and I buy 200 shares of Ford. Everything that happens as to distribution of profit, I get twice as much as you do. If there is a loss, my share will be twice as much as yours, as well. Oh, well.

It isn't Ownership of the company, but ownership of the interest in the corporation by virtue of pro rata shares. A Corporation has no Owner. It has Shareholders. What is the share ownership for this entity?

The corporation has its operations and performance, the result of which is on the tax reporting. The income and expenses are not passed through to the individual. The performance has an end result that is on the 1120S. This 1120S info is what is then passed through to the shareholders. There also might be entries or activities that are disallowed for the corporation, so they get passed through to the individuals for reporting. And there are some things that are not part of tax reporting at all and there is no tax benefit to the corporation or the shareholders for that thing.

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"Level Up" is a gaming function, not a real life function.

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2 Replies 2
qbteachmt
Level 15

Perhaps you got some guidance from someone that has an LLC, and not an S Corp. This is pretty vague, so let's review:

Let's pretend that you buy 100 shares of Ford and I buy 200 shares of Ford. Everything that happens as to distribution of profit, I get twice as much as you do. If there is a loss, my share will be twice as much as yours, as well. Oh, well.

It isn't Ownership of the company, but ownership of the interest in the corporation by virtue of pro rata shares. A Corporation has no Owner. It has Shareholders. What is the share ownership for this entity?

The corporation has its operations and performance, the result of which is on the tax reporting. The income and expenses are not passed through to the individual. The performance has an end result that is on the 1120S. This 1120S info is what is then passed through to the shareholders. There also might be entries or activities that are disallowed for the corporation, so they get passed through to the individuals for reporting. And there are some things that are not part of tax reporting at all and there is no tax benefit to the corporation or the shareholders for that thing.

*******************************
"Level Up" is a gaming function, not a real life function.

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sjrcpa
Level 15

You can't. Everything has to be pro rata according to ownership. Otherwise you have created more than one class of stock and blown the S election.


ex-AllStar