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Question

Net income vs retained earnings after distribution

Forum|Forum|3 years ago
February 21, 2023
3 replies
0 views

I am an s corp. Took a small distribution in 2022. When I started doing taxes, Turbotax is considering my distribution and lowering my net income. I thought the distribution came out of my "basis" and has no impact on the end of year net income. As a result, I am getting an error on my balance sheet.

Employee

For QB questions or issues, you might want to try the QB Community.

https://quickbooks.intuit.com/learn-support/us-quickbooks-community/misc/03/community-us

PTGeekAuthor

sorry, I meant TT.. I fixed original post.

Employee

Where are you seeing this "lowering" of your net income?

The S corporation's ordinary business income/loss should appear on Line 21 of your 1120-S and distributions of cash/property to shareholders should not have any impact on that figure.

Your distributions of cash/property should appear on your K-1 and will generally lower your basis.

the on;y way this could happen in QB if the wrong tax code was use for the distribution making it an expense and not a distribution. you are correct a distribution should not reduce S-Corp income. only your basis.

PTGeekAuthor

OK. The more I learn, the more confused I am.

Distribution comes out of my basis and doe not impact my net income or my retained earnings = got it

income remaining at the end of the year = net income ... got it

then TT talks about retained earnings. Are retained earnings the same as net income?

Do retained earnings ultimately get added to my basis (for potential distribution this year)

I understand I am paying taxes (through my personal tax return) on my net income or QBI but I am a little lost on the retained earnings vs basis.

None of the IRS documents explain this in a way I can understand.

HELP

Employee

@PTGeek wrote:
Distribution comes out of my basis and does not impact my net income or my retained earnings = got it

In short, net income will increase retained earnings while distributions will decrease retained earnings.

PTGeekAuthor

how to retained earnings impact basis? do they "add" to my basis/increase my basis or are these two separate columns?