ProSeries: Do you enter the 1120S excess distribution as a shareholder equity adjustment, Sch L line 25, or do you override retained earnings balance to show the excess distribution as negative retained earnings?
How about loan repayment or loan to shareholder?
Or sale of stock to corporation?
Debit to retained earnings.
Question Restatement:
One the balance sheet, retained earnings is already $0. There are no loans for repayment. The shareholder is taking it as a capital gain personally - distributions in excess of basis. For the ProSeries 1120S, I would need to override retained earnings to show the negative value equal to the excess distribution. Is this correct or should the amount be reported on Schedule L line 25, shareholder equity adjustment?
Question: How do you notify taxpayer they have a capital gain ? On k-1?
Shareholders are responsible for calculating their basis, not the S corporation. However, I have been known to put a note on their K-1, such as : Distributions you received may exceed your basis. Please consult your tax advisor.
I can tell you that in Lacerte, the default is to show it as a decrease to retained earnings, even if that takes RE into a debit balance. (The same is not true for AAA.) No override needed. I personally am happy with that answer.
Thank you for your response. I am in ProSeries and not Lacerte, so I will override retained earnings to show it as a negative balance.
