How do I enter tax exempt income for an S Corporation?
- Go to Screen 31, Schedule M-1, M-3.
- Click on Schedule M-1 from the top left navigation panel. (This will take you to Screen 31.1.)
- Scroll down to the Income Recorded on Books Not Included on Schedule K (-) section.
- Locate the Tax-exempt Income subsection.
- Hold down Ctrl+E in, Other (Ctrl+E).
- Enter the Description.
- Enter the amount under the Federal column.
- 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."