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The excess distribution will be closed out to retained earnings that will create a negative balance. That will happen when the shareholder has used up stock basis. Some others here may also suggest creating a shareholder loan, but I'd caution that this should be fully documented and make sure that is the shareholder's INTENT, including paying it back with interest that at least meets the current AFR. Also talk to your client about not using the S corp as his or her personal checkbook.

As far as I know, all unemployment benefits are taxable to the feds, normal and "additional."

I have been doing this on my own tax return since the first year it was allowed, just as Lion described. Very easy. Also have most of my clients who qualify doing this also.

Correction to above re: the federal AFR. If creating a loan, the interest rate s/b the appropriate AFR when the loan was made, not the current rate.

Thank you, Possi...that's my understanding as well but wanted to make sure I am not missing something.

Debit: AAA $1,000 Debit: Shareholder Draw (I would debit S/H A/R) $55,000 Credit: Cash $56,000

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