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Jon Andrews
Jon Andrews, Certified Public Accountant (CPA)
Category: Tax
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Experience:  I deal with all levels of tax planning and controversy - from the ordinary to the complex.
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Can I take districution from capital, therefore reduce the

Resolved Question:

Can I take districution from capital, therefore reduce the "Capital stock" on balance sheet?
I had taken distribution more than retained earning last year, therefore the balance sheet is not balanced since the "Cash" is decreased. When I started out the company a few years ago, the "Capital stock" on balance sheet was told to put in a huge number. Now I want to take some money from the company, would like to know if I can reduce the "Capital stock" to a smaller number. Thanks
Submitted: 6 years ago.
Category: Tax
Expert:  Jon Andrews replied 6 years ago.

There is no need to reduce the capital stock account. If you have taken distributions in excess of retained earnings, the retained earnings account will be negative.



Customer: replied 6 years ago.
I am using Turbo Tax, and it doesn't go negative on Retained Earning for excessive distribution. Beside, the "Cash" is much lower the "Capital Stock" now. Any suggestion?
Expert:  Jon Andrews replied 6 years ago.

I do not use Turbo Tax so I cannot tell you specifically what to do with that software, but there has to be a way - negative retained earnings is not uncommon. Turbo Tax support indicates that retained earnings can be negative. See this link


My guess is that there is a box to check or an interview question to answer that will allow this to happen properly.



Customer: replied 6 years ago.
So it is ok that "Capital Stock" is less than "Cash" on balance sheet? What if I really want to reduce the number for "Capital Stock"?
Expert:  Jon Andrews replied 6 years ago.

It is quite normal for capital stock to be less than cash. Capital stock is a defined number - number of shares outstanding times par value per share. There is no negative or positive impact on anything based on the capital stock amount. You can make it $0, $1,000, or $1,000,000 and it will not have any tax impact whatsoever. So, if you want to change it, go ahead.



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