I'm nearly there, but the balance sheet is not zeroing out.
I believe the issue is that I took distributions instead of contributing towards my Solo 401k during the year, as I knew I could pay off the 401k liability (recorded on Payroll bills) before the tax deadline (i.e. in the following year, before March 15).
Summary of the situation:
- TT wants to say my retained earnings are zero, and instead reports the M-2 Wks Line G "Distributions in excess of retained earnings", but Line G doesn't show up on the Balance Sheet.
- On the Balance sheet I booked the 401k contribution as a liability.
- According to my books, I have negative retained earnings, but TT doesn't want to let me say that.
- With my distributions exceeding income (because the 401k contribution is booked as an expense, but not paid off in the fiscal year), I'm worried that I will have to pay Long Term Cap Gains on my personal return for the excess distribution
Example
- $100 gross profit
- $50 expenses, of which $25 is a 401k contribution
- $50 net profit
- Instead of paying the $25 to the 401k plan, took it as a distribution (to pay later by tax deadline)
- Made $25 in early 2023, paid off the 2022 401k liability
- Therefore, $75 distribution in 2022
- Excess $25 distribution
I suppose by question is two part, how do I get the balance sheet to balance? Do I manually override the Retained earnings (change from 0 to negative) to offset the excess distribution, or offset it as "Adjustments to shareholder equity", or?
How do I avoid the Cap gains? I suppose the value of the tax deferral (30-40%) is still better than the Cap gains, but it's not a great situation. I suppose I can pull the money back out of e-Trade (say its an excess contribution) but then I'd have to sell the stock and I think that would be a mess.
