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Ok thank you but that last part confuses me to as almost everything I read on s corps says to not close retained earnings out to anything as the example below that i got off of upcouncel.com, I think my problem is I have read to much and watched to many videos and there is a lot of conflicting answers, I suppose it probably comes down to preference as i all gets put on the tax form the same way. The way you said makes much more sense to me as retained earnings gets reported for only the current year on the 1120s.

 

If your S Corp has significant retained earnings, then the S Corp could lose its status. Keep in mind that the previous year’s closing balance in the retained earnings account is used as the opening balance the following year. In order to calculate the new retained earnings, you will take that opening balance and then do the following:

  • Add net income.
  • Subtract net loss.
  • Subtract the portion of the income distributed to shareholders to identify the closing balance for the retained earnings account.

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