Distributions are limited to the amount of Equity you have in the business. In your case, your retained earnings from 2020 are the maximum amount you can count as distributions. The excess distributions need to be reclassified and reduce the "Loan from Shareholder" amount on your balance sheet.
Then walk through the questions in the Balance Sheet section of your Federal Taxes and confirm the amounts to clear the imbalance.
To correct a shareholder's distribution please follow these steps:
Review your retained earnings reconciliation again and it will reflect correctly.
Your suggestion was the first thing I did. Unfortunately, it didn't work. On the Retained Earnings Reconciliation Summary screen, it's showing the Shareholder Distributions as the same amount as beginning Retained Earnings, which doesn't make sense. It's simply not picking up the amount I input as Shareholder Distributions. Appears to be a bug in the program. Thanks.
It would be helpful to have a TurboTax ".tax2021" file that is experiencing this issue.
You can send us a “diagnostic” file that has your “numbers” but not your personal information. If you would like to do this, here are the instructions:
At the top menu in the black line at the top of the page go to Online.
We will then be able to see exactly what you are seeing and we can determine what exactly is going on in your return and provide you with a resolution.
@llbyer
Distributions are limited to the amount of Equity you have in the business. In your case, your retained earnings from 2020 are the maximum amount you can count as distributions. The excess distributions need to be reclassified and reduce the "Loan from Shareholder" amount on your balance sheet.
Then walk through the questions in the Balance Sheet section of your Federal Taxes and confirm the amounts to clear the imbalance.
I would like to get a token if that will help me. This is my situation:
I cannot get TurboTax to allow me to input my cash distributions in the M-2 form. I have a negative retained earnings. I have completed our stock basis worksheets. My CPA (who uses different software) states there is no reason that this should be happening unless the stock basis had not been done. He said we should not have to reclassify this as loans as one person has mentioned and that there is nothing wrong in what we are trying to file.
Turbo Tax shows the cash distribution figure as "distributions in excess of retained earnings" at bottom of Schedule M-2/Retained Earnings Memo Smart Worksheet" on line G. It will not allow me to put that figure on Line E which is line for "Less Dividends and Distributions" and which is where it needs to be subtracted to make my balance sheet balance by increasing the Negative number. As it is, I cannot get a balanced balance sheet in Turbo Tax Business! I will have to go to other software next year. I cannot force the number on the forms. It stays at 0 and will not change!
the AAA a/c if negative can not reflect distributions made during the year. that has to go to one of the other columns.
here's a link to 1120S instructions look at the instructions for the M-2. they get complicated if the corp was once a C-corp and had undistributed profits. if never a C-corp, I'll save you some reading by saying the distribution has to go in the OAA column.
https://www.irs.gov/pub/irs-pdf/i1120s.pdf
THANK YOU SO MUCH!!
I had to delete the cash distributions throughout and run through step by step again, answering "no" on that question. Then under schedule K, I was able to put that amt. under the shareholder distribution box A on the line d . That put my balance sheet in balance and the distribution amt. shows up on M-2 column OAA allowing the negative RE to be increased.
However Turbo Tax still shows this as an error and the Box A cash distributions shows in pink. It allowed me to finish the return however even with the "error".
I'm glad I don't have to opt for not submitting the balance sheet.
So glad for your solution!!
I have never used Turbotax Business. I've only used pro software - many different versions depending on the vendor (yes some vendors had different versions of pro software ) - for over 50 years. the reporting of excess distributions as far as I can remember has not changed and some versions were "smart enough" to place excess distributions in the OAA columns others required manual entry. from what I gather there is no support for TTB. with pro software came the ability to actually talk to the programmers when issues arose and issues do arise even with pro software that costs tens of thousands of dollars
@Mike9241 wrote:
....from what I gather there is no support for TTB.....
Support for tax issues related to TurboTax Business is not available, but support is provided for programmatic issues.
The primary problem is, from what I have been able to glean from a number of test returns, resorting to Forms Mode is necessary for anything other than plain-vanilla scenarios.
I'm looking into that software for next year. Just google that name?
To which software are you referring? I cannot see where anyone mentioned a name.
TurboTax Business is about as user-friendly as you are going to get in terms of menu-driven software. Most professional software relies heavily on forms and you can do just about anything with TurboTax Business in Forms Mode (you simply have to know what you are doing).
I don't see it as user friendly. And they claim to offer full support in ads I see. I could get no help from TT for how to correct this R/E issue I had. When I phoned, the lady who answered stopped me when I mentioned it was about a business return. She then gave me an 800 # they were "advised" to give out to callers with issues with the business software. I called that # and got the IRS. How helpful is that?
I called again and got a different lady who told me to reclassify the distributions as "loans to shareholders".
Neither solution was acceptable or helpful and my CPA strongly disagreed with that last advice. I'm pretty fed up with TurboTax. I don't see it as user friendly. Not when I spent 2 days without being able to get a resolution on how to force entries on their forms pages. I knew how to complete the forms page but the software would not allow it. But I've not tried other software so maybe I don't know what I'm talking about. I just know every year their software has some dumb bug that requires a work around. I'm talking about the personal version as well.
@Raeka wrote:.....I've not tried other software....
I understand and was simply making an attempt to convey that in terms of being "user-friendly", TurboTax Business is more so in comparison to other tax software (particularly, professional versions).
I understand. Had to vent a little. I've never used pro software so I haven't any idea what it would be like.
thanks for your input.
@Raeka wrote:
I understand. Had to vent a little. I've never used pro software so I haven't any idea what it would be like.
thanks for your input.
You are most welcome, and I do fully comprehend what you are conveying (it is problematic).
However, for the DIY-er, there really is no better solution that TurboTax, even with its imperfections.
Hi this portion of TTB is limiting the shareholder distribution to the total income amount for the year, but including the previous retained earnings equity, the shareholder distribution should be allowed, and we allowed on previous return.
Example:
Shareholder Distribution was entered at $55000
RETAINED EARNINGS RECONCILIATION SUMMARY
Beginning Retained Earnings = $10000
Plus: Book Net Income = $50000
Less: Shareholder Distributions = $50000 (this is automatically limited to Book Net Income)
It should populate the $55000 and not limit the amount.
Shareholder distributions are limited to current year's earnings. The distribution of accumulated earnings (retained earnings) are considered a dividend distribution and need to be recorded and reported (on a 1099-DIV) as such.
Interesting I thought it was limited by Retained Earnings/balance at the beginning of the year plus Ordinary Income. This seemed to make sense since they are all retained earnings anyway until a distribution is taken.
So my question/concern is what kind of dividend would they be classified as on the 1099-DIV because these are accumulated earnings previously taxes and shouldn't be taxable? Also what are line 5a and 5b (ordinary and qualified dividends) on the schedule K-1 for if not for that? Some kind of foreign earned income I believe it references in the instructions...
Yes it appears this is not correct.
https://drakesoftware.com/Site/Browse/11747/1120S-Calculating-Schedule-M2