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Question: Owner Contributions/Distributions (1120)

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Level 1

Hello,

This is my first time preparing a balance sheet on Proseries for an 1120 corporation and I could use some help with how to allocate owner distributions and contributions. 

This is a new business and the corporation has a Net Loss of $7,044. the owner contributed $63,630.24 of their personal funds and took a distribution of $40,085.66. I have managed to get the Balance Sheet to balance.

My issue however is that I am not sure I am including the contribution and distribution in the correct boxes. I place the distribution under line 5a of Schedule M-2 and for the contribution I placed it under line 3 of Schedule M-2 which is "other increases" and typed in the line item "Owners Contribution". I find it odd there isn't a specific line item for owner contributions. Is this correct?

Lastly, there is the question on Line 6 of the Schedule K which states as follows:

"During this tax year, did the corporation pay dividends (other than stock dividends and distributions in exchange for stock) in excess of the corporation's current accumulated earnings and profits? See section 301 and 316 - if Yes, file form 5452, Corporate Report of Nondividend Distributions"

However, I see no 5452 form within Proseries and I am not sure if this even applies in my case even though there is a loss.

Any help or guidance on this matter would be greatly appreciated. Thank you!

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11 Replies 11
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Level 7

That's a big task to take on if you're not sure about what to do and where.

CPA Academy offer free webinars on all tax subjects and you might want to look in their archived section for some guidance. I only prepare 1040's so I can only offer guidance on where you might find the answers.

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Level 11

If it's a C corp, 1120, then there are no "Owner distributions," only salary, dividends, or repayments of Loans to Company.

The Contributions are either Capital Stock, Additional Paid in Capital, or Loans to Company.

So what are your numbers, really? Contributions = $___?

Distributions = $___ ?

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Level 12

C Corps have shareholders. They really don't have Owners, because they are their own entity. How many Shareholders are there?

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Level 1

The corp only has that one shareholder. So is this "distribution" actually considered a dividend?

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Level 12

Have you reviewed any C Corp materials? You stated this:

"the owner contributed $63,630.24 of their personal funds and took a distribution of $40,085.66. I have managed to get the Balance Sheet to balance."

What you didn't do is answer the question as to values are plugged in as what account names for the Balance Sheet? Additional Paid in Capital, Loan to the Corporation as a note payable to the shareholder, etc. And is that net loss a tax loss or a real loss? Because it is hard to distribute business profit from a business not making any money.

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Level 1

Should there be a place on the 1120 where I can adjust specific shareholders basis for this contribution to the business, and subsequent distributions (dividends)? The closest thing to a shareholder basis calculation I have found is Schedule M-2 The Analysis of Unappropriated Retained Earning per books. 

Am I understanding you correctly in saying that the contribution should only be entered generically  (not to specific shareholder) under "Capital Stock" and that the distribution should just be a reduction of retained earnings? 

From speaking to other accountants who use different software, they have told me there should be a specific form for shareholder basis calculations such as return of capital.

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Level 1

That makes sense, so what would be the best way to report this "dividend" and "contribution"? The net  of the two should be included in capital stock line of the balance sheet?

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Level 11

How would you have a dividend if the company had a loss?

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Level 1

It may very well be a return of capital. I guess to simplify my question, I am trying to find the proper form on the 1120 to calculate stock basis. In order to make adjustments for contributions and distributions from said C corporation. I can't seem to find a "Stockholder basis" form for the 1120. 

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Level 11

You need to learn more. The stock basis in a C corporation is what the shareholder paid for the stock. Period.

There are no "adjustments for contributions and distributions."

** I'm still a champion... of the world! Even without The Lounge.
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Level 12

It's time to find someone to mentor you on 1120, to take some continuing ed classes, and to otherwise get up to speed on this entity type and the tax regulations and how they apply. You cannot ask the internet to teach you this tax type in a peer user forum for how to use ProSeries. This is not the place for How to Learn to do taxes. Peer users cannot be responding to you one-and-one as a training cycle. This is not Intuit Tech Support or Customer Support.

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"Level Up" is a gaming function, not a real life function.
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