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Form 1120S - How to complete the Schedule M-2?
The line 7 is for "Distributions other than dividend distributions" so is correct to leave this line blank if "other than dividend distributions" were not paid?
And what about the cash distributions? Is the line 2 minus line 5 considered as the cash distributions? And is required to follow a formal procedure to take the money?
And what if the only owner just was taking money (writing checks from the company's account to pay all his personal expenses) over the year? The total of that checks approximately equals the net income of the company.
And does the figures in this schedule affect the tax the owner must pay?
And the amounts in Schedule M-1 and M-2 need to match with some other in the Schedule L?
And what if nothing has been made in previous years and the total in line 6 shows a very big amount (the sum of net income from several years)?
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Line 2 will include the net income from your S-Corporation (Line 21 from page 1 of form 1120S).Line 3 additions would include other taxable and tax exempt income (See Schedule K lines 1-10 of form 1120S)Line 4 would be the loss (if any) from line 21 of page 1 on from 1120S.Line 5 reductions would include any other negative amounts from lines 1-10 of schedule K from form 1120S, certain deductions, and non-deductible expenses (like personal expenses of a shareholder). (See lines 11 and 12, and line 16c of Schedule K) This needs to be expressed as a negative.Line 6 is the sum of lines 1-5. The amount here needs should be above zero. If it is not above zero, you will not enter any of your distributions (cash or non-cash) in line 7.Line 7 will be cash or non-cash distributions if up to the amount in line 6.)Line 8 is the difference between subtracting line 6 and 7. This can't be less than zero.
The M-2 generally has no effect on what you are being taxed on. The shareholders are (in a majority of circumstances)only taxed on taxable income of the corporation. Those items include:
For a list of the taxable income items, see schedule K of the 1120S, lines 1-10.
If there are additional questions, please reply to this answer so that I may assist you further.
Just one additional question in the letter c).
Is valid that the checks written for personal expenses of the owner can be handled as "draws" and not as non-deductible expenses?