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BK-CPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 933
Experience:  Owner of a CPA firm
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How should I report Owner's distributions in an S corporation

Customer Question

How should I report Owner's distributions in an S corporation that exceed AAA? K1?
JA: Thanks. Can you give me any more details about your issue?
Customer: The owner is an employee of the S-Corporation. At the end of the year net income was $30k. AAA at end of year was -614.00 before adding the $30k. officers distribution were $47K
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Submitted: 1 year ago.
Category: Tax
Expert:  BK-CPA replied 1 year ago.
Hello and thank you for your question. The AAA account only matters if the s-corporation was previously taxed as a c-corporation and has accumulated earnings and profits. If that isn't the case, you don't even have to track your AAA balance, but it is nevertheless suggested in case the s-corporation merges with another s-corporation having accumulated earnings and profits. Shareholders need to track their basis in their s-corporation shares and any loans they've made to the s-corporation. Losses in excess of basis cannot be deducted. Distributions in excess of basis are taxed as capital gains. When the shareholder eventually disposes of the interest in the s-corporation, the gain or loss is the difference between the amount realized and their basis. It is each individual shareholder's responsibility to track their owner basis. No shareholder's basis is reported on the Form 1120S or Schedule K-1s. Good corporate preparers that have the information will generate basis statements for the owners each year. Distributions to shareholders appear on Schedule K of the Form 1120S and Schedules K-1 given to the shareholders. They also impact equity reported on Schedule L. I hope this is helpful.