Welcome back! Ask questions, get answers, and join our large community of tax professionals.
cancel
Showing results for 
Search instead for 
Did you mean: 

Effect of reduced wages due to ERTC credit on Shareholder Basis and AAA Account

mhkdgal
Level 4

On an S-Corp return, I reduced the wages deduction by the amount of the ERTC credit received.   Since these wages are now non-deductible expenses, should the amount of wage reduction be a decrease to shareholder basis?    Should this amount be a reduction to the AAA account?  

Lacerte is automatically carrying the amount of the non-deductible wages to the AAA as an other reduction and to the shareholder basis worksheet as a reduction in basis.   I have seen some people saying that this is not correct.

Any help is appreciated and if you have a reference to an IRS Notice that addresses this, that would be helpful.

Thank you!

 

0 Cheers
1 Best Answer

Accepted Solutions
rbynaker
Level 13

I've not done these (thank God!) but through the wonders of double-entry bookkeeping isn't it just a wash?

The S-Corp net income will increase because the wage expense decreases.  So that will increase basis.  Then you decrease basis by the same amount of NDE to get back to where you started.  Right?

View solution in original post

0 Cheers
5 Comments 5
sjrcpa
Level 15

Nondeductible expenses of any kind reduce basis.


Ex-AllStar
rbynaker
Level 13

I've not done these (thank God!) but through the wonders of double-entry bookkeeping isn't it just a wash?

The S-Corp net income will increase because the wage expense decreases.  So that will increase basis.  Then you decrease basis by the same amount of NDE to get back to where you started.  Right?

0 Cheers
sjrcpa
Level 15

Yes


Ex-AllStar
0 Cheers
mhkdgal
Level 4

Yes!   I don't know why my brain wasn't thinking of it like that.    That makes sense - thank you!

 

rbynaker
Level 13

The only difference might be in the ordering of basis reductions depending on which method you choose.  But that's taxpayer favorable.