S-Corp M-1's

[JCH]

I have a cash basis S-corp I prepare for a consultant. I do the books in QuickBooks. The S-corp receives a K-1 from a partnership for consulting services performed by the S-corp shareholder. Distributions received by the S-Corp shareholder never equal the amount on the K-1 received from the Partnership. I'm okay with this, and understand why this happens. My question is should I be reporting the difference between the Partnership K-1 amount received, and actual income received by the S-corp as an M-1 adjustment? Anyone else out there have this issue of an S-corp receiving a K-1 from another business entity? Appreciate any replies. Thanks.

[BHoffman]

I have a cash basis S-corp I prepare for a consultant. I do the books in QuickBooks. The S-corp receives a K-1 from a partnership for consulting services performed by the S-corp shareholder. Distributions received by the S-Corp shareholder never equal the amount on the K-1 received from the Partnership. I'm okay with this, and understand why this happens. My question is should I be reporting the difference between the Partnership K-1 amount received, and actual income received by the S-corp as an M-1 adjustment? Anyone else out there have this issue of an S-corp receiving a K-1 from another business entity? Appreciate any replies. Thanks.

Distributions aren't income and don't affect income, so I don't see this as an M1 adjustment.

[JCH]

Distributions aren't income and don't affect income, so I don't see this as an M1 adjustment.

Distribution are indeed book income, but maybe I didn't explain this well. S-corp gets a
K-1 from a Partnership. The partnership K-1 income gets reported on the S-corp tax return.

[BHoffman]

Distribution are indeed book income, but maybe I didn't explain this well. S-corp gets a
K-1 from a Partnership. The partnership K-1 income gets reported on the S-corp tax return.

Sorry for misunderstanding

Yep. The K1 income is reported as income on the Scorp books and on the SCorp tax return. Not saying you are wrong, but I don't record distributions received as income. I record distributions from Partnership to SCorp as an increase to SCorp equity. I think it all comes out in the wash either way.

[JCH]

Sorry for misunderstanding

Yep. The K1 income is reported as income on the Scorp books and on the SCorp tax return. Not saying you are wrong, but I don't record distributions received as income. I record distributions from Partnership to SCorp as an increase to SCorp equity. I think it all comes out in the wash either way.

Thank you. Interesting. Maybe I'm approaching this wrong. So you must adjust the equity account on the books to account for the difference between actual K-1 income from the partnership and distributions received.

[Maribeth]

There should be an asset on the balance sheet titled something like "Investment in ABC Partnership". Distributions received from the partnership will reduce this asset. Income passed out to the corporation on a K-1 will increase this asset. The year end balance of this asset is the corporation's basis in the partnership.

There should be no M-1 adjustment required on the corporate return.

Maribeth

[BHoffman]

There should be an asset on the balance sheet titled something like "Investment in ABC Partnership". Distributions received from the partnership will reduce this asset. Income passed out to the corporation on a K-1 will increase this asset. The year end balance of this asset is the corporation's basis in the partnership.

There should be no M-1 adjustment required on the corporate return.

Maribeth

Thank you for your answer. Wish you'd post more often

[JCH]

There should be an asset on the balance sheet titled something like "Investment in ABC Partnership". Distributions received from the partnership will reduce this asset. Income passed out to the corporation on a K-1 will increase this asset. The year end balance of this asset is the corporation's basis in the partnership.

There should be no M-1 adjustment required on the corporate return.

Maribeth

Thank you. Appreciate the input.