Construction Case Study - Understanding S-Corp Distributions

May 29, 2018

TYPE OF INDUSTRY: Construction



We worked with an S-Corporation client who had not taken a distribution in over two years due to tax concerns. His company was highly profitable, so our challenge involved educating him about the inner workings of an S-Corp business as a flow-through entity for tax purposes. He was retaining a lot of cash in the company and should have been taking some out to diversify risk. The owner was investing money in the stock market through the company but did not know that he was able to remove the funds. He only paid himself through monthly payroll.


The top challenges were educating the client about best practices for an S-Corp and correcting falsehoods and preconceived notions conveyed by a previous CPA.  


We recommended a plan to review profit every quarter and schedule distributions accordingly. The client was not taking money out of the company as a distribution for fear it would be subject to another tax. We reassured him that it would not be, and that, in fact, it could be used to cover tax payments. The untouched money had already been taxed (through K-1s issued), so he could withdraw at will.

We encouraged the client to avoid storing excess cash in the company unless there was a strategic reason for it, such as bonding required, immediate expansion or upgrades. We explained that the storage of excess cash in the business provides unnecessary risk.  We suggested diversifying assets by reinvesting the money in a rental or investing in the stock market personally, not through the company.

In the end we determined there was no valid reason for the client to sit on the cash he had amassed rather than using it in the business or distributing it to shareholders. If the company were to be sued or if there were an unfortunate accident, then all of the money resting in the account could be subject to creditor claims.


  • Analyzed balance sheet
  • Discussed business goals
  • Educated client on benefit of S-Corp
  • Provided recommendation for distributions
  • Ongoing support of distributions and cash flow management


200 West Roseburg Avenue
Modesto, CA 95350

(209) 527-4220 (phone)
(209) 527-4247 (fax)


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