Sub-S Distribution Error: Form 1120S p3-5: Total distributions should be blank ... Enter distributions and/or dividends directly on Schedule K, lines 16d and 17c.

Hi:

I am entering a Sub-S distribution as part of the shareholder information in TurboTax Business. The ultimate goal is to create a K-1 that I pass to my personal return. Upon TurboTax review, I am told:

Form 1120S p3-5: Total distributions should be blank because you have checked the box NOT to compute Schedule M2 and/or NOT use the Schedule M-2/Retained Earnings Worksheet. Enter distributions and/or dividends directly on Schedule K, lines 16d and 17c.

The amount appears in Schedule K -- Shareholder Distribution -- and Dividends Smart Worksheet” --Enter total cash and property --and in 16d, Distributions, but not in 17c – Dividend distributions paid from accumulated earnings and profits. All 3 boxes say pretty much the same thing. So should I just remove the first number in the smart worksheet, leave the number in 16d and add the number to 17c? If indeed the worksheet is related to retained earnings, I can see why it should not be there. Retained earnings don’t exist in a Sub-S. Can someone help me out?

Thanks for your help!

Terry

1489

Level 15

Feb 22, 2021 4:08:07 PM

Did you not come across the Distributions to Shareholder page in Step-by-Step?

It is right near the beginning (Business Info tab>>Shareholder Information).

Level 2

Feb 22, 2021 4:51:11 PM

Hi tagteam. Yes, I entered the distribution into the shareholder information. I had assumed TurboTax would know where to put the number in it's forms, but that was not the case. Hence the error. I did the entry right and checked it a couple of times. I am being forced to edit Schedule K directly and needto know if I am doing it right.

Thanks for your reply.

Level 1

May 10, 2021 8:54:26 AM

I am having this same issue and can't get a response from Turbo Tax. It makes no sense as I filled out the step by step the same as last year, and this year it gives me an error and doesn't put it on the right form.

Level 2

May 10, 2021 1:39:24 PM

I was finally able to resolve this. I made myself a note for next year to do the following:

document dividend distribution to shareholders in Fed Taxes > Balance Sheet section. DON'T SHOW IN EARLIER DIVIDEND SECTION.

Turbotax support isn't really geared to business returns. I found this tidbit after a bunch of internet searching. Hope it works for you.

Terry

New Member

Mar 16, 2025 4:38:04 PM

+1 to the same issue w/ FY24 software. I've filed the same way (entering distributions within shareholder information) without these error for 10+ years. FY24 software did first pass of federal review with no errors; insisted I update before submitting; then reviewed again and came back with this error.

OY.

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Sub-S Distribution Error: Form 1120S p3-5: Total distributions should be blank ... Enter distributions and/or dividends directly on Schedule K, lines 16d and 17c.