reporting unapplied payments on Quickbooks from previous years

We are filing the final return for our S Corp and I discovered some unapplied payments from previous years. When I went back and applied them it successfully zeroed out the accounts receivable negative balance that I was trying to get rid of but there's about $7,500 of unreported rental income now from those previous years. It shows up as distributions in excess of retained earnings on the schedule M-2 worksheet since we did a final distribution of all remaining funds. Can I just add this amount to the rental income that is reported in the final year to resolve this on the tax return? It seems like this would be the simplest way since you can make journal entries to customer accounts on Quickbooks. Other than this, we're ready to file. Any help would be greatly appreciated!

490

Expert Alumni

Mar 9, 2022 11:17:54 AM

Distributions in excess of basis are income to the partners, so recording this adjustment as income on the final return makes sense. Rather than rental income from a prior year, you can record this as Other Income, and perhaps provide additional information with Schedule K-1 to explain the income source.

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reporting unapplied payments on Quickbooks from previous years