s corp final return - zeroing out balance sheet
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11-Mar-2021 11:27am
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#1
nauticalx
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been a while since I've had to file a final return for an s-corp, but I have one and have always tended to zero out the balance sheet. this s-corp has a negative retained earnings due to losses or distributions (or a combination of both) and a loan from shareholder. any thoughts on the easiest way to zero this loan out? it will not be repaid to the shareholder owner but it doesn't matter because it's a pass-through entity. We're only talking about less than $1,000 but I want to do it right. Would anyone simply leave the final balance sheet as-is, with the loan outstanding to shareholder and negative retained earnings? The s corp was closed and dissolved so stock is worthless and not was sold or transferred in any way. Thanks!
11-Mar-2021 12:43pm
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#2
JR1
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So you're saying that the s/h took distributions in excess of basis....but where did the money come from to do that? An S corp will always have an ending 0 Balance sheet and usually nothing to report for 1040 cap gains/losses since it's all passed thru. Unless inherited or purchased from another s/h...
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11-Mar-2021 12:54pm
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#3
nauticalx
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It's more of losses after distributions taken the first year, losses the shareholder loaned money into the corp to cover.
11-Mar-2021 1:12pm
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#4
JR1
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Ah, so it does zero out then. Yeah, just offset them and call it a day.
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Remembering our son, Ben Jan 22, 1992 to Aug 26, 2011.
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11-Mar-2021 1:18pm
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#5
nauticalx
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It doesn't offset this year. there was a running loan from shareholder from previous year for roughly 2k but only 1k profit this year. so there is still an outstanding loan of roughly 1k and negative 1k retained earnings offsetting it.
don't i need to zero out the loan and negative earnings or does the zero total liabilities and shareholder's equity suffice to close out the company?
11-Mar-2021 2:29pm
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#6
JR1
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Just zero it all out....just how it works.
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Remembering our son, Ben Jan 22, 1992 to Aug 26, 2011.
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11-Mar-2021 3:09pm
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#7
nauticalx
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the only issue is to zero out retained earnings you report a distribution, so in this case, a negative distribution to offset that, which seems odd and not the way I remember it.
11-Mar-2021 3:21pm
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#8
JR1
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I wouldn't do that....show us a balance sheet of these accts, maybe I'm missing something.
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11-Mar-2021 5:22pm
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#9
COGS
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If you move the loan to Additional Paid In Capital you will get negative retained earnings equal to CS and Additional Paid in Capital. I like that presentation.
11-Mar-2021 5:43pm
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#10
Jeff-Ohio
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If you move the loan to Additional Paid In Capital you will get negative retained earnings equal to CS and Additional Paid in Capital. I like that presentation.
No. Listen to JR1.
What is the big issue here?
We have to 2 things on the Bal Sheet here…a credit in S/H Loan for $X and a debit in RE for the same $X. If you make a journal to debit the S/H Loan and credit RE, everything is $0 now.
the only issue is to zero out retained earnings you report a distribution
No you don’t. The guy made a loan of $X. Over the years, he took distributions and had losses that equal the same $X that he lent, resulting in negative RE. Offset the two and you’re done. Final Bal Sheet is all zeros.
There is no need or purpose to move the loan to APIC. That just moves your credit to a different Bal Sheet account and doesn’t zero out the Bal Sheet. But if you wanted to do that, fine, and then you can offset immediately thereafter, thereby resulting in all zeros. But this added step is pointless.
12-Mar-2021 7:13am
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#11
nauticalx
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Jeff-Ohio wrote:
If you move the loan to Additional Paid In Capital you will get negative retained earnings equal to CS and Additional Paid in Capital. I like that presentation.
No. Listen to JR1.
What is the big issue here?
We have to 2 things on the Bal Sheet here…a credit in S/H Loan for $X and a debit in RE for the same $X. If you make a journal to debit the S/H Loan and credit RE, everything is $0 now.
the only issue is to zero out retained earnings you report a distribution
No you don’t. The guy made a loan of $X. Over the years, he took distributions and had losses that equal the same $X that he lent, resulting in negative RE. Offset the two and you’re done. Final Bal Sheet is all zeros.
There is no need or purpose to move the loan to APIC. That just moves your credit to a different Bal Sheet account and doesn’t zero out the Bal Sheet. But if you wanted to do that, fine, and then you can offset immediately thereafter, thereby resulting in all zeros. But this added step is pointless.
Makes sense but wouldn't it be proper to report a negative distribution so as to show that in the end, the guy paid in (paid back) prior distributions to make the company zero out its obligations? This inflow would carry over to his personal return via K1 so that it's all squared.
12-Mar-2021 7:37am
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#12
oldguy
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i don't always zero them out - depends on my mood (sorry that doesn't help)
12-Mar-2021 10:30am
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#13
Jeff-Ohio
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but wouldn't it be proper to report a negative distribution so as to show that in the end, the guy paid in (paid back) prior distributions to make the company zero out its obligations?
A negative Distribution is a capital contribution, which is a separate Equity account, typically called APIC. So, you would never report a “negative distribution” on Schedule K, or the K1.
What is the issue here: Are you sitting here, looking at the basis worksheet and telling us the guy has positive ending Debt Basis, because of this Shareholder Loan, yet, he has recognized capital gain in the past, personally, for previous Distributions in Excess of Stock Basis?
Is that what’s going on here?
26-Jan-2024 8:00am
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#14
Camilo0092
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Sorry to rehash this.
I understand the balance sheet. Do you just plug the difference on schedule M-2? Any specific language i need to put?
26-Jan-2024 11:13am
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#15
JR1
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What difference do you speak of?
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26-Jan-2024 11:20am
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#16
Camilo0092
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So the balance sheet zeros like your comment above. but my M-2 still shows the negative R/E triggering a error in Ultra Tax.
Do you typically leave the final M-2 negative? Or do i add the loan as other additions to zero out M-2 with an explanation? I Guess i can plug it to timing differences.
It doesn't make sense as to why i would include it, but its the only way to make the error go away.
26-Jan-2024 11:27am
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#17
JR1
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Hmmm. I dunno, sorry. . .wondering what entries got made that didn't get to M-2...?
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26-Jan-2024 11:41am
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#18
kyle242gt
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Camilo0092 wrote:So the balance sheet zeros like your comment above. but my M-2 still shows the negative R/E triggering a error in Ultra Tax.
You may need to put in an adjustment on M2 to reflect the effective capital contribution.
Camilo0092 wrote:Do you typically leave the final M-2 negative? Or do i add the loan as other additions to zero out M-2 with an explanation? I Guess i can plug it to timing differences.
But note that AAA may well not equal RE may not equal basis. I mean, it could (and I'd sure try for it) but prior excess distributions (among other things) can leave things unequal.
26-Jan-2024 11:44am
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#19
Camilo0092
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Capital contributions in a S Corp don’t go to schedule M-2
I think it’s just a technical glitch within my software that’s requiring them to tie
It’s says ending M-2 balance does not tie to schedule L retained earnings. Typically if I have a difference it’s a timing difference. But on a final year who knows.
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