I have a new client and his situation poses a few challenges. To start with, he doesn't have the best accounting records.
However, the thing that troubles me most is trying to figure out how to categorize 'distributions' that he gives himself from an S-Corp. He treats these distributions basically as equity distributions while he shows no income from the S-Corp. To be fair there is no operating income from what I can see. I just need to sort out how to deal with the distributions that appear to be 'guaranteed' distributions he gives himself.
His prior accountant showed an ordinary business loss from this S-Corp and showed no taxable income derived from the Company distributions. Has anyone dealt with something similar?
He is an absentee owner and he figures he's just taking equity distributions / loans. I can't seem to get a good answer about how the company was initially capitalized and that gives me pause as well.
To make me more suspicious is that he has some carry-forward losses from two prior companies. (I'm assuming he did something similar for those companies.)