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Entering Tax Exempt Income for an S Corporation

SOLVEDby IntuitLacerte Tax24Updated July 27, 2021

How do I enter tax exempt income for an S Corporation?

  1. Go to Screen 31, Schedule M-1, M-3.
  2. Click on Schedule M-1 from the top left navigation panel. (This will take you to Screen 31.1.)
  3. Scroll down to the Income Recorded on Books Not Included on Schedule K (-) section.
  4. Locate the Tax-exempt Income subsection.
  5. Hold down Ctrl+E in, Other (Ctrl+E).
  6. Enter the Description.
  7. Enter the amount under the Federal column.
  8. Click OK.

This amount will flow to:

  • Form 1120S, Schedule K, line 16b,
  • Form 1120S, Schedule M-2, line 3.
  • Schedule K-1, line 16 with code B.

Per the Form 1120S instructions,

"Tax exempt income. Do not include any tax-exempt income on lines 1a through 5. A corporation that receives any tax-exempt income other than interest, or holds any property or engages in any activity that produces tax-exempt income, reports this income on line 16b of Schedule K and in box 16 of Schedule K-1 using code B.

Report tax-exempt interest income, including exempt-interest dividends received as a shareholder in a mutual fund or other regulated investment company, on line 16a of Schedule K and in box 16 of Schedule K-1 using code A."

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