Company LLC, 1120S Dividend Issues

[Darknessfall5]

Good day, 

I have an issue were a Single shareholder from and LLC declared the 1120S grab more money than the retained earnings and the system is giving me an error about this issue.

what can I tell the client in regards this and how I can fix it

Thanks

[sjrcpa]

Distributions in excess of basis (if that's what you have) are taxable.

As part of the money grab, did the owner take W-2 wages?

[Darknessfall5]

Thank you for answering and helping.

he only did himself 1099-MISC. Is there another way to work it.

[Darknessfall5]

Thank you for answering and helping.

he only did himself 1099-MISC. Is there another way to work it.

[qbteachmt]

You never get a 1099-Misc from your own entity, so that needs to be corrected.

An S Corp has the requirement to pay as payroll, so that needs to be corrected.

There is no Dividend for an S Corp. That is a Distribution, and taking more than their equity position means they have reportable income, not as retained earnings distribution for that overage.

Your client is doing everything wrong. If you are not familiar with how to guide them on this, I recommend bringing into the picture someone you both can learn from.

[Rick19744]

Additionally, if you are involved in preparing the tax return, distributions cannot cause the AAA to go negative.

This means that distributions reported in AAA may not be the same as reported on the Schedule K-1.