Let's say a friend of a friend has been the sole owner and employee of an S Corp for five years. Some of the past K-1s have reported a loss, and some years have reported a profit. The business owner had filed these K-1s as part of his personal income tax and paid the appropriate income tax.
The owner has never taken a distribution from the corporation, but now realizes that he can/should. Given that some years have incurred a loss on the K-1, and some years a profit, what is the correct way to calculate the amount of money the owner can take out of the corporation as a distribution?
I recognize that distributions are based on basis, but this question is specifically asking about calculating an amount to distribute based on five years' worth of past K-1s. For example:
- Year 1: (1000)
- Year 2: (1000)
- Year 3: 2000
- Year 4: 20000
- Year 5: 30000
Should the total sum of profit and loss be calculated, meaning the owner can receive $50,000? Or do the losses not affect this, leaving the owner to receive $52,000? (The IRS description about debt basis is confusing.)