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Discussion Forum Index --> Advanced Tax Questions --> Closing s corp distributions to retained earnings
Discussion Forum Index --> Tax Questions --> Closing s corp distributions to retained earnings
Theresa d (talk|edits) said:
| 30 January 2008
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| at year end i close the stockholder distributions ( S corp) to the retained earnings account. This has resulted in a negative retained earnings of $20,000 with additional paid in capital on schedule L of $28000. In effect the shareholder has received a distribution of the paid in capital. Should the distributions be closed against the paid in capital account rather than the retained earnings? does it matter either way? shareholder has basis for the distributions- no tax effect
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Theresa d (talk|edits) said:
| 30 January 2008
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| I understand to follow the ordering rules in determining the tax effect on the shareholder. It would not be taxable as the shareholder has basis. What i'm confused about is the accounting for the distribution. Does it get closed out to retained earnings or paid in capital. From researching comments in previous discussions it was indicated that the paid in capital account is never reduced. From a tax standpoint it is a non taxable transaction-how is it reflected on the balance sheet -schedule L?
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PVVCPA (talk|edits) said:
| January 30, 2008
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| Sorry, Theresa. It doesn't appear I read your question correctly. I believe it is closed against Retained Earnings.
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UTdave1 (talk|edits) said:
| 30 January 2008
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| You can't create negative R/E with distributions. When you make a distribution and aren't paying it out of retained earnings then you have a return of capital and should debit APIC then (if needed) Common stock. What you may have is partially a dividend, pay R/E to 0, and then a return of capital on the remainder.
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JR1 (talk|edits) said:
| January 30, 2008
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| Or a NP S/H which is upside down until repaid.
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