@cmeier
In answer to your question: because those numbers aren't the same thing and don’t go to the same places in your tax forms. The TurboTax user interface (TT UI) does a bad job of explaining this if you don't read very carefully. Like me, you're probably just trying to account for the portion of your S-corp profits this year that you're distributing to yourself as something other than W-2 salary. But you’re not quite sure where to put that number. At least, I wasn’t.
There appear to be two places to enter this value in TurboTax Business; in the Shareholder Info section or in the Balance Sheet.
Before we continue, please understand I’m not a tax professional. I’m just a guy who’s been trying to figure this out for himself.
If you’re trying to do what I think you are, we want to be using the Shareholder Info section, "2019 Distributions to Shareholders" in the form of cash. These flow to the K-1 on Line 16-d. You’ll notice a note in the TT UI there saying something to the effect of “Many owners think of cash distributions as “dividends” but only S corps that were once C corps or acquired a C corp could pay a dividend.” This is very helpful info.
Let’s look at the Balance Sheet entry. If you pay special attention, you’ll understand why this is the wrong place to put those S-corp distributions. Note that it says “Dividend Distributions to Shareholders.” The key is the word dividend. That should NOT be confused with a distribution, which is what you’re trying to achieve.
And frankly, the TurboTax UI should never even allow you to go to this screen for an S corp that was never a C corp, because only a C corp would use it. S corps pass through their earnings every year. Unlike a C corp, they don’t accumulate earnings & profits. An S corp shouldn’t be using this screen, and if TT was really helping rather than just facilitating, it would never take you here.
This is further supported by what I saw on the IRS website. The number you put in that balance sheet box for "dividend distributions of accumulated profits" goes to 1120s, line 17c. On the IRS website, in reference to line 17c, it says, “Enter total dividends paid to shareholders from accumulated earnings and profits. Report these dividends to shareholders on Form 1099-DIV. Don't report them on Schedule K-1.”
Are you generating a 1099-DIV? No, you're not. You’re not a C corp generating (actual) dividends like a publicly-traded company. You’re an S corp generating distributions.
I hope this helps. Let me know your thoughts.
