Cash or property paid out to an owner from a pass-through entity's profits. Distributions are generally not taxed when paid because the owner was already taxed on the profit; they reduce the owner's basis.
Distributions above basis become taxable capital gain, and for S corporations they must come after a reasonable salary. Tracking basis on Form 7203 is what keeps a distribution tax-free.
No. The profit is taxed once on the owner's return via the K-1; the distribution of that profit is not taxed again as long as it does not exceed basis.
Source: IRC 1368; IRS Form 7203 instructions
Last reviewed September 17, 2026. Tax rules change; confirm current law before acting.
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