Specifically, an S corporation increases its AAA for the same items that increase basis, except AAA is not increased for capital contributions or tax-exempt income. Similarly, AAA is decreased for the same items that decrease basis, except for non-deductible expenses related to tax-exempt income.

Are retained earnings recorded on Schedule M-2?

The 1120S schedule M-2 analyzes adjustments to the accumulated earnings account, other adjustments account, and previously taxed income account. It is not a reconciliation of retained earnings as the schedule M-2 is for an 1120.

How are distributions handled on the 1120s schedule M-2?

1120S Sub S Corporate. What are some of the ways that distributions can be handled on the M-2? Distributions on the Form 1120S, Schedule M-2 are handled differently for different scenarios. Distributions are not allowed to result in a negative amount for line 8, although line 8 can be negative due to operating losses.

Where does Form 1120S carry different amounts than schedule K?

Distributions reported on Line 7 of the Schedule M-2, Form 1120S may carry differently than the amount entered on the Schedule K, Line 16d. The distributions are limited due to the ordering rules under Reg 1.1368.2. These rules are as follows for Schedule M-2, Column a:

Where do you put distributions on Form 1120S?

The Instructions for Form 1120S, pages 40 and 41, explain this. This is not to say that the corporation cannot make distributions greater than the amount on line 6 of the Schedule M-2, but that those distributions may be taxable to the shareholders. Distributions are to be entered on the Schedule K, Line 16d.

Can a schedule M-2 result in a negative amount?

Distributions on the Form 1120S, Schedule M-2 are handled differently for different scenarios. Distributions are not allowed to result in a negative amount for line 8, although line 8 can be negative due to operating losses.