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Yes, I usually put the distributions in excess of basis on line 3 of the AAA account, so that the ending balance on line 8 is zero. If you don't do this, the ending balance in the AAA account is a negative number. The AAA can be negative, but only from losses, which are suspended if there is no basis. The AAA account can not become negative (or go more negative) from a distribution in excess of basis.
The Shareholder Control Sheet Negative Basis that is reporting the Cash Distribution in Excess of Basis on Schedule D is larger than the AAA #3-Other Additions -to offset the ending balance to zero….Since the Shareholder is reponsible for keeping track of this....I’m assuming this is alright.???
Is the Shareholder Control Sheet something from your tax program? I am not familiar with it.
Each taxpayer is responsible for maintaining his or her own basis.
You may have to override your tax program, as the distribution that is in excess of basis is the amount that should be shown on Schedule D of your personal return. This amount should be the same as the amount that you put on Line 3 of the Schedule M-2 in the AAA account. The Form 1120-S and the Form 1040 are different tax returns. TurboTax is not set up to run very complex tax returns, so you may have to do some fudging. I use a program called Lacerte, which is designed for tax professionals, and I still have to override and force things.
Let me know if you have any more questions. I will be offline while taking my son to school and running some errands, but I will be back later.
I also use Lacerte Tax Software.
In order to balance the M-2 AAA-line 5 Distribution in Excess of Basis exact dollar amount equal to Shareholder’s Distribution in Excess of Basis Capital Gain on Schedule D: is to insert on M-2 AAA-line 5-other reductions the offsetting dollar amount. Should I call this prior period adjustment? The difference is only $2,000....i'm going through prior years to see if it could be found...
I believe the most important part of the M-2 in my case is to show the ending balance of the AAA to be zero and Line 5 Distribution in Excess of Basis, and, since we know the Profit and the Distribution in Excess of Basis is correct which creates the correct tax liability.
If you are only $2,000 off on a 40 shareholder corporation, you are doing well! You are correct, the distribution in excess of basis and the zero ending basis are the important things to get correct. If you need to "plug" the amount somewhere, calling it a prior period adjustment, this is acceptable. If the amount is not material (which I doubt $2k is) then there is no problem doing this.
I hope this helps! Let me know if you have any more questions!
Very much Appreciate all your answers to my questions…..EXTREMELY HELPFUL.
Note: I was using 40 shareholders as an example only.
I have another question and I will double your fee of $38 for the following question…
This is a new question and maybe in the future or now, you would like me to close the session and start a new one????
Corporation rents a monthly storage facility to keep Furniture and fixture for future use. A Shareholder uses 20% of storage facility for personal storage last year. The monthly fee is paid by the Corporation.
No, the corporation would not use an M-1 to eliminate the expense. When the corporation creates the shareholder receivable, the journal entry would be debit receivable, credit the rental expense. This one entry both removes the 20% that is personal use, and creates the receivable from the shareholder.
Sometimes simple accounting can resolve complex questions! I hope this answers yours! If you have any more, please let me know! I enjoy answering these !
No it does not. The corporation has a claim against the shareholder, so there is no basis reduction, unless the corporation does not intend to ever collect the receivable.
A distribution could be used to pay off a shareholder receivable. The entry for that would actually be debit distributions, credit note receivable, but this is just a shortcut for what would be two transactions - first payment of the distribution with cash, then second pay the receivable with the cash.
Yes, as this would be viewed as a two-step transaction, the distribution could cause a gain if the distribution is in excess of basis. Yes, in effect you could defer the capital gain if there is a bona fide receivable.
If you have any more questions, please let me know!
I opened up a new question on the main site requesting only YOU....
Thanks! I answered it. I appreciate your requesting me!