Penalties Form M-1

[Loopy08]

I paid an underpayment penalty in 2017 with a check from my company.  Quickbooks shows that as an expense "to be entered on form M-1".  But entering that penalty on M-1 does not alter my P&L on my 1120s.  Thus, my Balance Sheet is always out of balance.  How can I make my Balance sheet balance?

[RaquelFF]

Hello,

I would like to recommend that you refer to page 33 of the instructions below, in order to determine whether or not you are required to file a Schedule M-1:  https://www.irs.gov/pub/irs-pdf/i1120s.pdf

An S-Corporation is a pass-through entity.  This means the taxation passes through to the owners.

Let's assume this tax was imposed by state on the Corporation.  Please read the instructions for line 12, Taxes and Licenses, on page 14 here:  https://www.irs.gov/pub/irs-pdf/i1120s.pdf

If this applies to you, the taxes paid will be an expense reflected on the Income Statement.  This will affect the net profit, and ultimately the total assets and equity.

If these taxes were imposed on you, the owner, personally, and paid by the Corporation, this should be treated as a distribution.  A distribution will not affect the net profit on the Income Statement but it will affect the assets and equity.