Question 1: Was the CPA correct in simply dividing the balance equally, or should the CPA have prepared different K-1s showing how much of that balance actually belongs to each individual shareholder?==========>> as you can see, an S corp is not a MMLLC; The IRS requires shareholders who actively participate in the corp?s operations be paid a reasonable wage.if not they are no longer employees of the S corp. An S corp that does not pay a reasonable compensation to its shareholders/employees avoids payroll taxes. The payroll tax savings, of course, raises an issue with the IRS
income, losses, and other items, are passed-through an S corp to each of the 4 shareholders according to his/her percentage of ownership in the s corp. Unless you are just a passive investor but are active in running the S corp, then the IRS will consider you a reg W2 employee of the S corp. In that case, under IRS rules, you must receive at least some of your share of the corp?s profits in the form of a salary since the S corp is not a MMLLC, a partnership I mean. The same holds for any other shareholder-employees as well as for any corp officers regardless of whether they?re also shareholder. With small, closely-held businesses in particular, it?s common for the few shareholders to also run the business, so it?s important to be aware of the requirement to pay shareholder-employees a salary. Unlike distributions, shareholder-employee salaries are subject not only to the personal income tax but also to federal employment taxes.though It?s up to the people who run an S corp I mean its officers and directors, to decide how much salary to pay the corp?s employees, since An S corp shareholder performing more than minor services for the S corp will be its employee for tax purposes.
Question 2: If the balances are to be divided equally, is there someone else that the two shareholders with negative balances can account for their lack of share in the income?=======>As mentioned above; unlike MMLLC members, S corp shareholders don't pay self-employment aka seca taxes on their distribution from the corp. But S corp owners who work as employees must be paid a reasonable salary. So, it depends; s corp shareholder has neg income only when the s corp has neg income.