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I have some questions on schedule M-2. Line 8 is negative.

Hi I have some...

Hi I have some questions on schedule M-2. Line 8 is negative. Should I report it as capital gain for my S-Corp?

Accountant's Assistant: The Accountant will know how to help. Please tell me more, so we can help you best.

It's my 2016 return. I think my tax person made a mistake of not reporting the negative number as capital gain for 2016.

Accountant's Assistant: Is there anything else the Accountant should be aware of?

The number is ***** huge. It's only -136. I want to see if I should have reported the $136 as capital gain for 2016. If so, how can I amend the return?

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Answered in 4 minutes by:
3/11/2018
Carter McBride
Carter McBride, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 1,038
Experience: Adjunct Professor
Verified
Hey! I'm Carter, I'm a CPA and can help.
A negative M2 does not create a cap gain. If you have a distribution in excess of basis, you have a cap gain. The negative M2 may be a red flag that you had a distribution in excess of basis.
Let me know if you need anything else. If not please leave a rating. Thanks!
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Customer reply replied 1 month ago
Thanks, ***** ***** basis at the beginning of the year is $0. I had $3126 of business income. But then I had $3289 of non-deductible expenses (50% meals and entertainment). I had no other distributions. On M-2 line 8, the number is *****$163. So my shareholder basis is now -$163. Are you saying that I do not need to report the $163 as capital gain for my 1040?
Your basis can never go below $0 so it would be $0 for next year.
There were no distributions so no cap gains are reported.
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Customer reply replied 1 month ago
But how would I account for the $163? It's the money I took from the company in addition to the ordinary income. Thanks again.
If it's money you took from the company, then its considered a distribution and would be a cap gain.
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Hey! Just wanted to follow up to see if you needed anything else. If not, please leave a rating so I can get credit for helping you out. Thanks!

Carter McBride
Carter McBride, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 1,038
Experience: Adjunct Professor
Verified
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