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Single shareholder of s-corporation. Sorry, didn’t finish…

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Single shareholder of s-corporation ...

Single shareholder of s-corporation

Accountant's Assistant: Have you talked to a financial professional about this?

Sorry, didn’t finish question, was starting to lay out the facts and accidentally hit send…

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Shareholder contributed significant capital in single owned s-corp in 2018. Over years the earnings were modest, no schedule L prepared in prior year’s return, but worksheets were not prepared correctly, amounts plugged into AAA and basis schedules to throw everything out of whack. This year the shareholder has taken too many distributions in excess of basis and will need to recognize gain on K-1. My question is on the accounting entry and treatment of the additional paid in capital ($50K over $1,000 common stock) on the books and the tax return, now that the have negative $5K retained earnings, 0 end balance in AAA and 0 stock basis ($5K excess distributions)

Submitted: 1 year ago.Category: Finance

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3/5/2022

Financial Professional: Carter McBride, Financial Advisor replied 1 year ago

Carter McBride, Financial Advisor

Category: Finance

Satisfied Customers: 11,272

Experience: Adjunct Professor

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Hey! I’m Carter, I’m a CPA and can help you out.
Your original entry for the contribution to APIC and common stock will not change. So those numbers should all be the same. Your retained earning will just decrease due to the distributions.

Financial Professional: Carter McBride, Financial Advisor replied 1 year ago

Thanks!

Customer reply replied 1 year ago

Ok so we have negative retained earnings from closing excess distributions ( balance falls just under $5K deficit) We paid her a salary that was just too high, more than than “reasonable”, deferred employee max to her solo401k and accrued $20K employer contribution for 2021. The return hasn’t been filled yet. If I reduce the employer PSP contribution to $15K or below) she keeps retained earnings in the black and basis above water (barely). Would it be better to decrease the PSP contribution to do this and avoid recognizing a capital gain on her individual return in lieu of bumping up her retirement savings? Thanks so much for your help!

Financial Professional: Carter McBride, Financial Advisor replied 1 year ago

You’d have to calculate the tax savings from the contribution vs the tax paid for any distribution in excess of basis.

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