Entering Nondeductible Expenses for an S-Corporation in Lacerte

Nondeductible expenses for an S-Corporation:

Meals and Entertainment:

1. Go to Screen 15, Deductions.
2. Browse to the Meals and Entertainments section.
3. Enter the meals in full under Meals in full (50% deductible).
4. Enter the food and beverages from a restaurant under Food or beverages from a restaurant(100% deductible) (See Notice 2021-25).
5. Enter the meals (DOT) in full under Meals (DOT) in full (80% deductible).
6. Enter entertainment under Entertainment (nondeductible).

The program calculates the allowed 50% and 80% of meals expense based on entries in Meals (in full) and Meals (DOT) in Full. Food or beverages from a restaurant(100%) are fully deductible in 2021 and 2022 based on tax law changes related to notice 2021-25. Entertainment Expenses are nondeductible from 2019-2022. All nondeductible expenses flow to Schedule M-1, line 3b and Schedule M-2, line 5. The program carries the amount to Schedule K, line 16c and Schedule K-1, box 16c.

Enter an amount to override the program in Screen 31.1, Schedule M-1 under Disallowed travel and entertainment (code 102). The program carries the amount to Schedule K, line 16c and Schedule K-1, box 16.

Other nondeductible expenses can be entered in Screen 31.1, Schedule M-1, M-3, under the section Expenses Recorded on Books Not Included on Schedule K.

Federal underpayment penalty:

If you check the box to Accrue Federal Tax in Screen 3.1, Misc/Other Info, and the program calculates a penalty on Form 2220, the program carries the amount to the following forms:

• Schedule K, line 16c
• Schedule K-1, box 16c
• Schedule M-1, line 3b
• Schedule M-2, line 5, column (a) Other Reductions
  • To override the calculation of the Federal underpayment penalty included as a nondeductible expense, make an entry in Screen 31.1, Schedule M-1, M-3, under the section Expenses Recorded on Books Not Included on Schedule K in Federal underpayment penalty [O].

State Underpayment penalty:

If you enter 1 in 1 To Accrue Federal tax in Screen 3.1, Misc/Other Info, and the program calculates a penalty on Form 2220, the program carries the amount to the following forms:

• Schedule K, line 16c
• Schedule K-1, box 16c
• Schedule M-1, line 3b
• Schedule M-2, line 5, column (a) Other Reductions
  • To override the calculation of the state underpayment penalty included as a nondeductible expense, make an entry Screen 31.1, Schedule M-1, M-3, under the section Expenses Recorded on Books Not Included on Schedule K in State underpayment penalty [O].

Officer's life insurance premiums:

The program default for Officer's life insurance premiums is to carry the amount to the following forms:

• Schedule K, line 16c
• Schedule K-1, box 16c
• Schedule M-1, line 3b
• Schedule M-2 Line 5, column (a) (Accumulated Adjustments Account) when there are no Other Retained Earnings (prior C corporation E&P).
• Schedule M-2, line 5, column (b) (Other Adjustments Account) when there are Other Retained Earnings (prior C corporation E & P), or if the If Accumulated Earnings and Profits at Year End (memo) is checked in Screen 3.1, Misc/Other Info.
  • Under the field 1=reduce AAA by officers insurance premiums, 2=reduce OAA by officers insurance premiums [O], enter a 1 to reduce AAA or 2 to reduce OAA by officers insurance premiums

If you do not want the nondeductible expenses to show as an adjustment on the M-1 but need to show on the M-2 and the Shareholder Basis Schedule, the amounts entered in Screen 31, Schedule M-1, M-3 will allow this to happen, as well as Screen 9, Shareholders Basis.