You'll need to sign in or create an account to connect with an expert.
An S corp does not pay taxes, the income, deductions and credits flow directly through to the shareholders. Under Sec. 1368, an S corporation’s distribution of cash or property may give rise to three possible tax consequences to the recipient shareholder: a tax-free reduction of the shareholder’s basis in the corporation’s stock, a taxable dividend, or gain from the sale of the stock (generally resulting in capital gain). These options are not mutually exclusive; a single distribution may result in two or even all three of those consequences.
The treatment of an S corporation distribution depends on the shareholder’s basis in his or her S corporation stock and the S corporation’s earnings and profits (E&P) and accumulated adjustments account (AAA). An S corporation will have E&P only if it was previously a C corporation or it acquired the assets of a C corporation in a Sec. 381 transaction. An S corporation distribution from E&P is treated as a dividend. The treatment of a distribution made by an S corporation without accumulated E&P depends only on the shareholder’s basis in the S corporation stock.
So you basically would not account for an excess distribution as that is not possible under the IRS laws. You would have a return of capital transaction on your hands, not a distribution. This would reduce your basis in the company, and not result in a taxable transaction.
I am just a volunteer. Please ask any additional questions.
My S-Corp had retained earnings of $448 in 2019 and $4000 in common stock.
We dissolved it effective December 31, 2019 and liquidated the assets (just a bank account) in February 2020.
We had no income in 2020 and expenses of $516, so a net loss of $516.
When we liquidated the assets, we disbursed $3484 = $4000 - $516.
In entering information into TurboTax for Business for the computation of retained earnings for 2020, would it be $(68) (448 - 516)? Or $(3552) (448 - 516 - 3484)?
In technical lingo, an S corporation is not permitted to have any retained earnings. This is different from a regular corporation, which can retain—and pay taxes on—its earnings.
So are you in the wrong program ? Did you mean to choose the C-Corp instead ?
https://smallbusiness.chron.com/s-corporation-pay-taxes-retained-earnings-67061.html
You seem to have an accounting issue not a tax return situation.
Still have questions?
Make a postAsk questions and learn more about your taxes and finances.
MGloeckler
Returning Member
NYC89
New Member
allinost
New Member
ron2024
Returning Member
knownoise
Returning Member
Did the information on this page answer your question?
You have clicked a link to a site outside of the TurboTax Community. By clicking "Continue", you will leave the Community and be taken to that site instead.