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Is it going to raise a flag if our S-Corp distributions are much higher than the calculated profit for the year?

Forum|Forum|7 years ago
June 6, 2019
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Our owner distributions (beyond wages) were almost $50,000 total more than what TurboTax is calculating as our "ordinary income" (profit) last year. Will this raise a red flag with our return?

FYI, we paid ourselves more after underpaying ourselves in previous years.

TurboTax Business Windows

Best answer by MinhT1

No, distributions much greater than the year's profit would not necessarily raise a red flag with the IRS.

As you said yourself, these distributions could represent profits not yet distributed from past years.

M

MinhT1Answer

No, distributions much greater than the year's profit would not necessarily raise a red flag with the IRS.

As you said yourself, these distributions could represent profits not yet distributed from past years.

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A

alohaTyAuthor

However, I'm seeing now on our Schedule M-2, Line G, that we have a significant "Distributions in excess of Retained Earnings". Will this raise a red flag? If this is unusual and could trigger an audit, then perhaps we didn't carry over retained earnings properly in past years (last year we transitioned from LLC to S-Corp, and RE may not have properly carried over).

Also, I'm surprised that line C equals line F, even though the ending balance should probably be negative since our distributions this year exceed the beginning Retained Earnings plus the Net Income...

Thanks.