Net income vs retained earnings after distribution

[PTGeek]

I am an s corp. Took a small distribution in 2022. When I started doing taxes, Turbotax  is considering my distribution and lowering my net income. I thought the distribution came out of my "basis" and has no impact on the end of year net income. As a result, I am getting an error on my balance sheet. 

[Anonymous_]

For QB questions or issues, you might want to try the QB Community.

https://quickbooks.intuit.com/learn-support/us-quickbooks-community/misc/03/community-us

[PTGeek]

sorry, I meant TT.. I fixed original post. 

[Anonymous_]

Where are you seeing this "lowering" of your net income? 

The S corporation's ordinary business income/loss should appear on Line 21 of your 1120-S and distributions of cash/property to shareholders should not have any impact on that figure.

Your distributions of cash/property should appear on your K-1 and will generally lower your basis.

[PTGeek]

schedule M-2

retained earnings smart worksheet

[Anonymous_]

That is your AAA.

See https://www.irs.gov/instructions/i1120s#en_US_2021_publink11515kd0e6961

[Mike9241]

the on;y way this could happen in QB if the wrong tax code was use for the distribution making it an expense and not a distribution. you are correct a distribution should not reduce S-Corp income. only your basis. 

[PTGeek]

OK. The more I learn, the more confused I am. 

Distribution comes out of my basis  and doe not impact my net income or my retained earnings = got it

income remaining at the end of the  year = net income ... got it

then TT talks about retained earnings.  Are retained earnings the same as net income? 

Do retained earnings ultimately get added to my basis (for potential distribution this year)

I understand I am paying taxes (through my personal tax return) on my net income or QBI but I am a little lost on the retained earnings vs basis. 

None of the IRS documents explain this in a way I can understand. 

HELP

[Anonymous_]

---

@PTGeek wrote:

Distribution comes out of my basis and does not impact my net income or my retained earnings = got it

---

In short, net income will increase retained earnings while distributions will decrease retained earnings.

[PTGeek]

how to retained earnings impact basis? do they "add" to my basis/increase my basis or are these two separate columns? 

[Anonymous_]

Net income (that you are taxed on) increases your basis while distributions decrease your basis. 

Retained earnings basically tracks the undistributed balance of income of the corporation.

[PTGeek]

I have gotten myself so frustrated with this year's taxes. I think I need to bite the bullet and get professional help.  Has anyone used TT to do the business s-corp taxes for them?  good experience? I know I am in "crunch time" 

[Anonymous_]

Have you seen the pricing structure?

https://turbotax.intuit.com/personal-taxes/online/live/full-service/business-taxes

[PTGeek]

yes. I don't feel like the pricing is too bad? do you? I'd love to use a small CPA firm but I am worried i am cutting it too close to 3/15

[Anonymous_]

No, I do not, but I simply wondered if you were aware of it. I do not believe it is out of line in the least.