AAA again

[BOB W]

When a shareholder withdraws money greater than the AAA account and the regs say that the AAA cannot go below zero caused by withdrawals, where are those excess withdrawals posted to if not current year distribution. Is separate account established that is not cleared to the AAA account at the end of the year

[dsi]

When a shareholder withdraws money greater than the AAA account and the regs say that the AAA cannot go below zero caused by withdrawals, where are those excess withdrawals posted to if not current year distribution. Is separate account established that is not cleared to the AAA account at the end of the year

Bob W,
I will try to answer this. On the tax return, the XS distributions can reduce the AAA account to zero, but not below zero. Any XS distributions are then reported on the S/H's 1040 as a sale of XYZ's stock.

I would deduct that the debit entry would be to common stock. However, remember that the AAA account can be reduced below zero for other reasons...AND it doesn't have to equal the RE account.

[dsi]

the correct word is "deduced" NOT "deduct".

[BOB W]

Bob W,
I will try to answer this. On the tax return, the XS distributions can reduce the AAA account to zero, but not below zero. Any XS distributions are then reported on the S/H's 1040 as a sale of XYZ's stock.

I would deduct that the debit entry would be to common stock. However, remember that the AAA account can be reduced below zero for other reasons...AND it doesn't have to equal the RE account.

I appreciate your answer. Right now the equity section in my accounting TB as well as the tax return show a negative balance. Since negative is not allowed where would that debit be moved to.

I was alot easier when I moved it to loan to officer, but I'm trying to do it correctly, especially since basis info is now required on both corp and personal tax returns.

[Joe Btfsplk]

Equity vs AAA

The Retained Earnings CAN be reduced below zero by withdrawals in excess of basis. But your AAA cannot. My software takes care of this automatically. If you start with $1000 in Retained Earnings, and make a $ 1000 profit, you have $2000 available. Then if you draw out $ 3000 your returned Earnings would be minus 1000 and your AAA would be zero. If the Corp made $4000 next year and you drew $2000, both your AAA and retained earnings would then be a positive $ 1000.

[Joe Btfsplk]

Debits to common stock?

Bob W,
I would deduct that the debit entry would be to common stock. However, remember that the AAA account can be reduced below zero for other reasons...AND it doesn't have to equal the RE account.

You should NOT debit common stock. you can't have negative common stock. You should debit Retained Earnings.

[BOB W]

Retained earnings.....

........... is not an SCorp account. Please explain this creation of a non-SCorp account.

[rosieea]

........... is not an SCorp account. Please explain this creation of a non-SCorp account.

Yes it is. Look at Form 1120S, Schedule L, line 24.

[BOB W]

Line 25.......

Yes it is. Look at Form 1120S, Schedule L, line 24.

...... Adjustments to Shareholders Equity looks like a better choice. I will caption it "Excess distribution taxed to shareholder".

[dsi]

Call it what you want, but as rosieea pointed out it is alright for the Sch L to show a negative R/E (but not a negative common stock account).

[BOB W]

Since.....

.... I can't show a negative Common stock or a negative AAA ( in this case) the only choice is in line 25, which effects RE.

[rosieea]

...... Adjustments to Shareholders Equity looks like a better choice. I will caption it "Excess distribution taxed to shareholder".

I'm not sure I understand your aversion to the R/E account. Line 25 does not seem appropriate - see page 35 of the instructions for Form 1120S. R/E are clearly reduced by shareholder distributions and are not the same thing as AAA.

[dsi]

.... I can't show a negative Common stock or a negative AAA ( in this case) the only choice is in line 25, which effects RE.

Agree with this. However, you can show a negative RE account on the BS (page 4, line 24).

[OldJack]

For accounting, a corporation is a corporation except for how it is taxed. Every corporation would have a retained earnings account with various sub accounts such as appropriated (taxable E&P dividends), unappropriated (taxable E&P dividends), previously taxed income (the old non-taxable), and of course the more recent popular AAA account.

Many C-corporation do not bother with sub-accounts and therefore the retained earnings account has been know as a taxable dividend account or E&P, when that is not necessarily the case.

Therefore, although the AAA account is said to not be negative for tax purposes, it actually can be negative for accounting purposes or the accounting could simply setup a separate sub account for the excess but it would still be a part of retained earnings account that can and commonly is negative.

[BOB W]

Your thoughts..........

......... and expressions are well received. You have all given me the required info I need to continue with this issue. Being [dense] I just need to fully digest and apply as I see fit, with all of your recommendations in this thread.

Thanks again..... Bob W