Question

Retained Earnings

Forum|Forum|5 years ago
April 5, 2021
1 reply
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I have an S corporation that we dissolved this year and need to account for the retained earnings. Is turbo tax able to handle this? Is there a place to report it in any of the turbo tax products?

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ToddL99

Yes, TurboTax Business will allow you to report the dissolution of your business and distribution of retained earnings.

See the attached screenshot for aid in navigating to the "Filing final return?" question in the "About Your Business" interview of TurboTax Business' S-Corp tax program.

In a dissolution, retained earnings are accounted for by way of distributions to the shareholders. After all other liabilities are met (i.e. "paid off") remaining assets should equal your retained earnings. Distributing those assets will "zero-out" retained earnings.

S-Corporation distributions are non-taxable. S corporation shareholder distributions are payments of corporate earnings that have previously been reported as income to the shareholders. The total distributions (except for dividends) -- including cash -- made to each shareholder and reported on line 17c of Schedule K-1 should be reported on line 16d of Form 1120S, U.S. Income Tax Return for an S Corporation.

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WBD1Author

Thank you very much for your reply. It was very concise. I was wondering about the personal tax return however. My business accountant finished the business return and now I want to do my personal return using Turbo Tax. Do I need to do something special on that return to show the retained earnings/ shareholder equity that I got from the business? What is the process in Turbo Tax for that?

Thank you again.

T

ToddL99

S-Corp earnings are taxed in the year they are earned. The "retained earnings" balance is not reported and taxed again on your personal return when you dissolve the S-Corp.

All you need to report on your personal return is the information on the 2020 Schedule K-1 from the S-Corp, making sure that you indicate this is a final K-1 (see below).

The Schedule K-1 will report your share of current year earnings, deductions and credits.

To report the K-1 on your personal return:

Down the left side of the screen, click on Federal.
Across the top of the screen, click on Income & expenses.
Under Your income and expenses, scroll down to Schedule K-1 and click Edit/Add to the right.
At the screen Tell us about your Schedule K-1, you tell the software which Schedule K-1 you received.
For several screens, you will be entering data right off the K-1 form.