For the first time, we had negative income last year as a 2-person S-Corp, due to COVID. However, we pay owner distributions monthly, including prior to when COVID hit, which was partially based on profit projections for the year. Therefore, our profit distributions for the year are much greater than the income (which was negative). Assuming we still need to report these distributions (16d on 1120s), should this raise a red flag?
This also results in a large negative retained earnings amount, since distributions are subtracted (Schedule M-2, smart worksheet line E). I believe having negative retained earnings is problematic, correct?
