I took a shareholder distribution during 2019. In the shareholder section of Turbotax, I entered the amount distributed, however in the balance sheet section it doesn't show up and there doesn't seem to be a way to correct it. That is throwing my retained earnings off. How do I fix it?
With TurboTax Business, you typically have to use the Balance Sheet section to manually adjust your retained earnings and cash accounts when distributions are made.
I have the exact same question as asked above - your answer did not solve it. Why do distributions in the retained earnings section not match what i entered in the shareholder distributions?
@cmeier wrote:
Why do distributions in the retained earnings section not match what i entered in the shareholder distributions?
What, exactly, is the problem? The distributions should reduce that account (RE). Is that not happening?
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.
@tagteam I think your response is incorrect. The poster has an S corp, not a C corp. To the best of my understanding, an S corp shouldn't have retained earnings, at all.
Let me know your thoughts.
@n8r wrote:Let me know your thoughts.
An S corporation can have retained earnings if net profits, on which the shareholders have been liable for tax via the K-1s they receive, are not actually distributed to them.
I agree with @tagteam but this can be confusing.
Retained earnings is really just a catch-all and is different when comparing C and S corps.
Also keep in mind, that this is the only category on the balance sheet of the 1120-S in which to "summarize" the annual activity. So when referring to retained earnings here, there is really no other option to reference.
The other issue here is that the balance sheet within TT is not a "computed" section in the software. The balance sheet needs to be maintained in either QuickBooks or some other method and then entered into TT manually.
Your'e correct and it's maddening that it doesn't carry over from Shareholder information and there doesn't seem to be an entry for it in the User Interface. I believe you have to manually enter that in M2 and override on the form. Totally stupid and TT never fixed it. Shame on them.
Same basic question above, but I am second guessing myself so would like to clarify...
When I enter my owner distribution amount of $208,849 in the Distributions to Shareholder section, it causes Turbo Tax's calculation of my retained earnings in the balance sheet section to be short by the amount of my owner distribution ( thereby not matching my accounting software balance sheet).
When I remove the entry from the Distributions to Shareholder section, everything balances perfectly. However this feels incorrect to me because there truly was an owner distribution of $208,849.
It seems to me that I'm paying taxes on the amount either way, so maybe I am over thinking it, but this is my first year as an S-corp to wanting to make sure i'm starting out correctly. Any response on this would be greatly appreciated! Thanks!
As Rick19744 previously posted, you will need to enter your actual balance sheet information (from your accounting software) into TurboTax.
You can do this using the "Balance Sheet" topic from main menu, or go to Forms and manually enter the correct numbers on Form 1120S p3-5, Schedule L. Note that any adjustments to Retained Earnings are entered on the Schedule M-2 Smart Worksheet farther down on page 5.
Change only numbers in fields/boxes that are blue. Right click other numbers and choose Data Source. If necessary, go to the source form to make your changes. Otherwise, you may see a red checkmark beside a form, which could prevent you from e-filing your return.
Finally, if you are not confident completing your business return yourself, you may benefit from the assistance of a local tax expert who is more familiar with your complete tax situation.
Additional info: What is Forms Mode?
Hi,
I'm reopening this as I think there's a bug within the software. I believe I see the same thing.
When you begin the step by step, the screen asks you to enter in your shareholder distribution. When you get to the retained earnings reconciliation - this amount is not included and therefore your calculations are off. It appears to be a bug within the software.
The software specifically asks for your distribution. But when you get to the screen to see it there, it's not there in the calculation.
This is not an accounting issue. The screen literally has 0. And the amount I'm off - is the amount I distributed to myself as an SD.
Was there ever a fix for this? Right now my RE is off so I can't carry forward the information.
I'm also having the same issue. My ending RE is incorrect because the shareholder distribution number is showing as zero. Was there ever a fix for this or do I truly have to adjust everything manually?
Retained Earnings are reported on Line 24, Columns (b) & (d) of Schedule L. The ending Retained Earnings amount is pulled from Schedule M-2 – Analysis of Accumulated Adjustments Account, Other Adjustments Account, and Shareholders' Undistributed Taxable Income Previously Taxed.
In the M-2 section of your return, you will enter the Distributions as indicated below:
I believe you are having the same issue as me so hopefully this helps. When I got to my RE reconciliation, the amount of money in there was wrong. I went back to the shareholder distribution question and I entered in 0/an empty value. I then moved back to balance sheet. It showed zero. I then went back again and put in the proper amount and it showed the proper amount.
It's some how "cached" and it's a bug. I hope this helps everyone here. There's a bug in this application here. It's not showing the proper amount unless you zero out the value first.