How to enter the Accumulated Adjustments Account (AAA) for an S-Corporation in Lacerte

 To complete the Accumulated Adjustments Account (AAA) for Form 1120S, Schedule M-2, follow these steps:

1. Go to Screen 32, Schedule M-2.
2. Enter the Beginning balance.
   • If this client was transferred from a prior year, this amount should be carried over during the proforma process.
3. Enter any Other additions to be included on Schedule M-2, Line 3.
   • Income items on the Schedule K (other than Ordinary Income) flow to Line 3 automatically.
4. Enter the Amount of Other Additions to carry to Schedule L.
   • Amounts entered in Other Additions don't automatically flow to the calculation for retained earnings; enter the amount here to include it in the balance sheet calculation.
5. Enter any Other reductions to be included on Schedule M-2, Line 5. 
6. Enter the Amount of Other Reductions to carry to Schedule L.
   • Amounts entered in Other reductions don't automatically flow to the calculation for retained earnings; enter the amount here to include it in the balance sheet calculation.
7. Enter an amount in Distributions other than dividends [O] to reduce the AAA if distributions from AAA are different from the amount entered in Property Distributions (Screen 8, code 101 or Screen 27, code 120).
   • Enter -1 if the amount is zero. Lacerte carries this amount to Schedule M-2, Line 7, column (a).
8. View the Accumulated Adjustments Account on Form 1120S, page 4, Schedule M-2.

Additional information regarding the AAA

• The AAA includes the S corporation's operating income (loss) for the year from trade, business, passive, and nonpassive activities.
• An S corporation uses the AAA account to calculate the tax effect of distributions made by the S corporation coming from accumulated earnings and profits (E&P).
• The S corporation is required to establish a zero balance on the AAA account on the first day of its first tax year.

These items increase the Accumulated Adjustments Account

• All corporate income items (except tax exempt income) that are separately stated and passed through to the shareholders
• The ordinary income of the S corporation (non-separately stated income)
• Oil & Gas depletion deductions in excess of basis

These items decrease the Accumulated Adjustments Account

• Distributions by the S corporation which aren't required to be included in the shareholders income (return of basis)
• S corporation's loss and deduction items (except nondeductible items) that are separately stated and passed through to shareholders
• The ordinary loss of the S corporation
• Any nondeductible items that aren't related to the production of tax-exempt income
• The shareholders deduction for Oil & Gas depletion