I need help with balance sheet for an s corp with 1 shareholder.

[nam1]

My husband is the sole owner of an LLC with s corp status. The s corp election was made in 2016, but our tax preparer filed a 0 income return for the s corp in 2016 and all business income was reported on schedule c. January 1st, 2017 will be the official start date of the business as an s corp. For the balance sheet, do we start off all accounts with 0s or do we transfer all numbers from the LLC's balance sheet? Will retained earnings be 0?

This will also be the final return for the s corp since business was closed in December. All assets have been sold and Turbo Tax helped me put in that info. There is still an accounts receivable and an accounts payable balance. Do I put in those amounts on the end of year balance sheet?

[CathiM · Accepted solution]

When you mark the S-corp return as final, it will automatically blank out the "end of year balances" on the balance sheet. You can enter your beginning balances on the tax return but only use 01/01/2017 where it asks for any dates.  If you enter dates prior to 2017, it could create problems.  The exception is the assets.  You can enter the old purchase date and the prior depreciation.  You may not have to enter the balance sheet at all, see below:

If your receipts for 2017 were less than $250,000 and the total assets on 12/31/17 were less than $250,000, you don't even have to complete the balance sheet.  

On page 2 of the 1120-S (Schedule B, Other information) question 10 is:

10 Does the corporation satisfy both of the following conditions? 

a The corporation’s total receipts (see instructions) for the tax year were less than $250,000 . . . . . . . . . . 

b The corporation’s total assets at the end of the tax year were less than $250,000 . . . . . . . . . . . . 

If you check “Yes,” the corporation is not required to complete Schedules L and M-1.

[nam1]

I did mark the s corp as final but the end of year balances on the balance sheet did not blank out. Our gross receipts were more than $250,000. As I mentioned earlier, there are still balances for accounts receivable and payable.

[CathiM]

If you are on a cash basis and there is still money to be collected and bills that need to be paid, you shouldn't make this the final return.  It's okay to dispose of assets but there is still business to finalize.  Are you cash basis?

[nam1]

No, accrual

[CathiM]

Okay! then you CAN file a final return!  I would still zero out everything in the end of year column on the balance sheet.  I have filed many final S-corp returns in private practice and we always zeroed out the end of year even if there is still AR and AP.  You have reported all income and expenses, you can collect the remaining moneys and wrap up the business.  The M-2 will show ending retained earnings balance.  You can't get rid of that. Hope that helps.

[CathiM]

Make sure H box 1 is checked "final return" on page 1 of 1120S before you file.

[nam1]

Thank you for that info. While we did close our business in December 2017, we actually had some inventory left that we sold in 2018 at a loss. I would like to revoke s corp status and report the 2018 loss on schedule c. Do I still zero the end of year balance sheet?

[schulze7]

We also closed an S-Corp business in mid 2019 and filed all of the necessary documents.

Assuming that we zero the ending S-Corp balance sheet, does the remaining inventory and Liabilities move over to the 2 shareholders through the K and K-1's. Would the shareholderes then have to record it on their 1040 sch C or treat it in some other way?

[annie66]

What about the beg balance sheet?  I have a SMLLC that has previously filed Sch C, but now on 1/1/20 will be an S-Corp.  On the 2020 1120S, is $0 reported for all beginning balance sheet accounts, or do we enter the ending 12/31/19 SMLLC balances (cash, fixed assets, retained earnings)?

[ThomasM125]

The beginning balances of the balance sheet should be entered since that is what is requested on the tax return. For practical purposes, however, the balance sheet will not affect your income or tax, as it is there for information purposes only.