Balance Sheet Single Member LLC to Scorp First Year

[Naomae]

Switched from single member LLC to SCorp beginning Jan. 2021.

Now trying to get the Schedule L/Balance Sheet to reflect correctly and I am wondering if I should be making an entry to show retained earnings for prior year profits prior to taking the scorp election and if so, on what line should that reflect?

Should I be completing the beginning of tax year columns, or leaving them zero and showing everything in End of Tax year?

Thanks in advance!

[Anonymous_]

I will page @Rick19744 for this one.

[Rick19744]

These are my thoughts:

• Since you most likely did not maintain a balance sheet as a SMLLC, rolling forward may be somewhat problematic.
• I would leave beginning of the year Sch L blank
• I would then enter all the other year end balance sheet items and RE (line 24) should be the "plug"
• S corps don't really have retained earnings, but this is where all closing defaults to each year
• The key going forward is two items:
  • The AAA column in Schedule M-2
  • Your basis in your S corp stock (see next bullet)
• Another twist for 2021 is the new form 7203
  • When reading the instructions to this form, you will note that this form will generally be required to be filed every year
  • The instructions indicate, and I agree, that you should continue to maintain this even in a year where you may not be required to file it (which will generally be rare)
• Hopefully you don't have any shareholder loans to the company, as that will add an additional layer of complexity to the form 7203 AND there is some murkiness to the treatment of open account debt (this is debt where there is no actual note)
• Keep in mind that your stock basis at the beginning of the year was zero.  What ever was contributed then becomes your current year capital contribution(s).