S-Corp owners contribution, distribution and retained earnings

AFSINC · ‎February 09, 2023

I started an S-Corp, in which I contributed $27k cash and $118k fair market value equipment to the business to generate income. Throughout the year, I took contributions of $51k. I created an Owners Capital Investment equity account that has the $27k cash and $118k Equipment asset as the initial journal entry. My distributions were adjusted from an Owners Distributions account already in QuickBooks. As an S-Corp, I am assuming that my stock basis is $144k. Should I be subtracting the distributions from this Capital Investment account to keep my basis up to date, or do they belong in separate accounts?

Also, would the initial cash investment of $27k be considered “Beginning Book Retained Earnings”?

Net Income for the year was $45k. Does this amount become part of my new basis, if retained? This one is the confusing part of my end of year calculations.

docsbp29 · ‎February 28, 2023

You can show the 27k as stock purchase in the equity section. You can also show the 118k the same way, but I would recommend you show the 118k as a lone from shareholder. That way you can pay it back when the company has money.

The 45k net income shows in the equity section as net income in the equity section at 12 31 22. But at 1/1/23 it shows as retained earnings on the balance sheet.

Rainflurry · ‎February 28, 2023

@AFSINC

There is no need to record the $118K as a loan from shareholder as @docsbp29 suggested, and, IMO, this is not the best way to record it. If you sell the business down the road, your basis in the business will determine your taxable income/gain from the sale. You can always take money out of the business tax-free up to your adjusted basis so there is no advantage to recording it as a loan IMO. It's a good idea to talk to your CPA about allocating your initial investment between Capital Stock, Additional PIC, and Contributions.

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S-Corp owners contribution, distribution and retained earnings

S-Corp owners contribution, distribution and retained earnings

S-Corp owners contribution, distribution and retained earnings

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