Discussion:Lacerte 1120S Diagnostic RE: AAA

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Discussion Forum Index --> Tax Questions --> Lacerte 1120S Diagnostic RE: AAA

Stevo (talk|edits) said:

16 February 2007
Hello. I'm fairly new to Lacerte and the 1120S. I have a very clean s-corp. Formed in 2005, with $10,000 of capital contributions, and a 4600 loss in 2005. 2006 is the final return. 2006 shows 5800 in income, leaving 1200 in net profits to distribute. We distributed a total of $11200 in 2006 (1200 net profits, plus 10000 return of capital).

My Sch K line 16d is showing the entire 11200 of property distributions. But AAA account in Sch M-2 is only showing 1200 in distributions, with a diagnostic that "the amount of sistributions entered to reduce AAA is greater than the balance available for reduction"

Questions: Am I supposed to call that 10000 a "return of capital" somewhere on the 1120S? Is it wrong to have the full $11200 on sch k line 16d? With the Balance sheet supressed, it appears that I don't show Capital Contributions anywhere on the return, and therfore I don't show return of capital eithr? Thanks again for your help.

Riley2 (talk|edits) said:

16 February 2007
The general rule is that distributions may not reduce AAA below zero. In addition, in many cases a distribution in excess of AAA is also a distribution in excess of basis (not the case here), and a capital gain would result from the distribution. There is no real reason to be alarmed about this diagnostic warning, and there is no requirement that you show the return of capital anywhere on the corporate return.

Stevo (talk|edits) said:

16 February 2007
Thanks for your input. I will leave as is.

Szptax (talk|edits) said:

24 March 2008
but won't it show a negative AAA & also then a negative RE? Isn't this a "flag" I have a similar situation & wasn't worried about the neg AAA because of the add'l pic.

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