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Here's a simple way to think about Schedule M-1 line 8: - Your books show a certain profit/loss - Tax law requires some adjustments to that profit/loss - Schedule M-1 walks through those adjustments - Line 8 is the final tax income/loss after all adjustments - This MUST equal Schedule K line 18 The most common errors I see: - Missing non-deductible expenses (50% of meals, penalties, etc.) - Forgetting to add back depreciation differences - Not including tax-exempt income - Overlooking accrual-to-cash adjustments
What about officer compensation? My accountant says that's one of the biggest reconciliation items for S-corps but I don't see where that fits on M-1?
Officer compensation is already deducted on both your books and tax return, so it typically doesn't create a book-to-tax difference that would need reconciliation on Schedule M-1. It should be reported on page 1, line 7 of Form 1120-S as a deduction. The exception would be if you have a timing difference - like if you accrued a year-end bonus on your books that wasn't actually paid within 2.5 months after year-end. In that case, the accrued-but-not-timely-paid portion would need to be added back on line 5 of Schedule M-1 as a non-deductible expense.
is it weird that my accountant just puts a plug number on line 5 to make line 8 match schedule k line 18? he says "everyone does it that way" but it seems kinda sketchy to me...
oh crap, seriously? he's been doing this for 3 years on my returns. should i be worried about getting audited? now im freaking out.
I'd definitely be concerned about this practice. While it might not automatically trigger an audit, if the IRS does examine your return, they'll expect to see legitimate book-to-tax differences supporting each line of Schedule M-1. You might want to request copies of your prior returns and ask your accountant to provide detailed workpapers showing exactly what items make up those "plug" amounts. If he can't provide specific documentation, consider having another CPA review your filings. The IRS has been increasing S-corp audit activity, and Schedule M-1 reconciliations are often scrutinized. At minimum, going forward, make sure every adjustment on Schedule M-1 is properly documented and represents actual identifiable differences between your book and tax treatment.
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Watch out for the impact on financial aid! If you're hoping your kids might qualify for need-based financial aid for college, using Roth IRA withdrawals during the high school years can actually hurt you later. The FAFSA will count those withdrawals as income in the year you take them, even if they're tax-free contribution withdrawals. Higher income on the FAFSA means less financial aid eligibility. This caught my family by surprise and really messed up our aid eligibility for my oldest.
This is so true! Many people don't realize how retirement withdrawals affect FAFSA. Even though Roth contribution withdrawals aren't taxable income for IRS purposes, they're still included as "untaxed income" on the FAFSA. We got hit with this last year and lost about $8,000 in grants.
This is a really complex situation that touches on several different tax and financial planning considerations. Based on what you've shared, here are the key points to consider: **Roth IRA Withdrawal Rules:** - You can withdraw your original contributions (the money you put in) at any time without taxes or penalties - However, withdrawing earnings for private K-12 tuition would trigger a 10% penalty plus income taxes - You'd need to track your contribution basis carefully to avoid touching earnings **Alternative Options to Consider:** - 529 plans (as mentioned) can now be used for K-12 private tuition up to $10,000 per year per child - Coverdell ESAs have always allowed K-12 expenses but have low contribution limits - Home equity loans or education loans might preserve your retirement savings **Hidden Gotchas:** - FAFSA impact: Even tax-free Roth withdrawals count as "untaxed income" on financial aid forms, potentially reducing college aid eligibility - Opportunity cost: Money withdrawn now loses years of tax-free growth potential Given that you're 43 and have twins, I'd strongly recommend getting a comprehensive analysis before making any moves. The tools mentioned earlier in this thread (like taxr.ai) could help you model different scenarios and their long-term impacts. You might also want to speak with a fee-only financial planner who can look at your complete financial picture. The fact that you're thinking about this carefully shows you're on the right track - just make sure you understand all the implications before deciding!
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Has anyone used TurboTax for filing S-Corp returns? I've used it for my personal taxes but not sure if it can handle the 1120-S and all the other forms for a single-member LLC with S-Corp election.
TurboTax doesn't handle Form 1120-S in their regular versions. You'd need TurboTax Business, which is their most expensive version, and even then it can be tricky for S-Corps. I've found that for S-Corps, even single-member ones, it's worth using either a dedicated tax pro or something like UltraTax or Lacerte, which are professional-grade software. The complexity with S-Corps comes with making sure you're handling the reasonable compensation requirements correctly and properly allocating between salary and distributions. Software helps, but understanding the concepts is more important.
Thanks for the info! Sounds like TurboTax Business might be overkill for my small S-Corp. I might look into those other options you mentioned or maybe just hire a tax pro for the first year until I understand the process better. It's a lot more complicated than I thought going from a simple 1040 to all these business forms!
I went through this exact same situation last year as a Canadian who moved to the US and set up a single-member LLC with S-Corp election! The learning curve is definitely steep, but you're asking the right questions. One thing I wish someone had told me earlier: make sure you're keeping detailed records of ALL business expenses from day one. With an S-Corp election, the IRS scrutinizes the separation between business and personal expenses much more carefully than with a regular LLC. This includes things like your home office, business meals, equipment, software subscriptions, etc. Also, since you mentioned you have a client in California, be aware that California has some unique rules for LLCs doing business in the state. You might need to register as a foreign LLC in California and pay their annual $800 LLC fee, depending on how much business activity you're conducting there. It's worth checking with the California Secretary of State or a tax professional about this. The good news is that with only $13,500 in revenue, your situation is relatively straightforward compared to higher-earning S-Corps. Just make sure you get everything filed correctly this first year to establish good habits going forward!
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I had a 570 code appear on March 3rd, 2024. It was resolved on March 17th with no action on my part. My refund was deposited on March 22nd. From what I've gathered, if your 570 is accompanied by a 971 code with the same date, it's usually just a review that resolves itself. If the dates are different or there are other codes, that might indicate a more complex issue.
I've been dealing with a 570 code since February 28th - so about 5 weeks now. Filed early expecting a quick refund but here we are! What's frustrating is seeing people who filed after me already get their money. I called the IRS last week and they said it's just a "review" but couldn't give me any timeline. The agent mentioned that 2024 has had more random reviews than usual due to new fraud detection systems. At least reading everyone's experiences here makes me feel less alone in this waiting game. Hoping to see movement soon!
Raúl Mora
Does anyone know if you need to file Form 8938 (Foreign Financial Assets) for PTPs like UCO? My accountant is saying that because some of the underlying assets in the partnership might be foreign, I might have an FBAR obligation, but that doesn't sound right to me.
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Charlee Coleman
•Your accountant is mistaken. UCO is a domestic PTP traded on US exchanges. You only need to file Form 8938 or FBAR for financial assets held outside the US. The fact that UCO might invest in commodities or futures contracts with international exposure doesn't make it a foreign financial asset for FBAR or 8938 purposes. This is a common misconception. You only need to report on those forms if YOU directly hold the foreign assets or accounts. Since you're just holding the PTP units which are domestic securities, there's no FBAR or 8938 requirement here.
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PixelWarrior
I went through this exact same situation with UCO! The key thing to understand is that you're NOT getting double-taxed, but the reporting can definitely be confusing. Here's what's happening: The Schedule K-1 shows your share of the partnership's income/loss for the year, which you must report regardless of whether you sold shares. When you do sell, you need to adjust your cost basis by adding all the K-1 income you've already paid taxes on (and subtracting any distributions received). For your 2022 sale, you'll report both the K-1 income AND the sale on Schedule D/Form 8949, but use your adjusted basis. So if you bought UCO at $20/share, had $5 of K-1 income over the years, and received $2 in distributions, your adjusted basis would be $23/share ($20 + $5 - $2). Make sure to keep all your K-1s from previous years - you'll need them to calculate the proper adjusted basis. The "higher revenue" on your K-1s compared to your brokerage gains is normal because K-1s show the partnership's actual business income, not just price appreciation.
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