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Level 2

Solved

Schedule K-1 error not caught?

2 replies
69 views

I recently finished my 2021 corporate 1120-S return and just found what looks like a problem with the K-1 which it generates. My ordinary business income is listed there as $43,214 in box 1, but I had a shareholder distribution of $50,000 (shown in box 16, code D). Shouldn't TT have flagged a distribution greater than income as an error?

TurboTax Business Windows

Level 15

no tax program i know of, including professional apps, does that. first, you might have prior undistributed S-Corp earnings so the $50K doesn't create tax issues. second, you could have outside tax basis so the $50K doesn't create tax issues. third, there's nothing in the tax law that prevents this even if you don't have tax basis. finally, Turbotx does not track tax basis that's your responsibility. which means its your responsibility to determine if the excess is taxable because it exceeds your tax basis. (I would say this is unlikely because the excess cash had to come from somewhere but if it came from C-corp retained earnings if the S-Corp was ever a C -corp, te excess is taxable)

Mike9241

Answer

Level 15

no tax program i know of, including professional apps, does that. first, you might have prior undistributed S-Corp earnings so the $50K doesn't create tax issues. second, you could have outside tax basis so the $50K doesn't create tax issues. third, there's nothing in the tax law that prevents this even if you don't have tax basis. finally, Turbotx does not track tax basis that's your responsibility. which means its your responsibility to determine if the excess is taxable because it exceeds your tax basis. (I would say this is unlikely because the excess cash had to come from somewhere but if it came from C-corp retained earnings if the S-Corp was ever a C -corp, te excess is taxable)

Mike9241

Level 15

The ordinary income reported in Box 1 of your K-1 has nothing to do with any distributions to shareholders in terms of program functionality.