Help with Balancing S-Corp Balance Sheet when Closing Business

This is a common issue when closing down an S-Corp. When you distribute cash to yourself, it needs to be properly categorized in your books. The $4,200 you paid out should be recorded as a distribution to shareholders, not as an expense. For your Balance Sheet to balance, you need to make sure that the distribution is reducing your equity accounts (likely Retained Earnings) rather than showing up as a reduction in cash without a corresponding entry. TurboTax is looking for what happened to that cash - it didn't just disappear. As for the disposed assets, you need to make sure you're recording any gain or loss on disposal correctly. The removal of the asset value should be offset by either cash received (if you sold them) or a loss recognized on disposal (if you discarded them). For liquidating an S-Corp, you need to properly account for the distribution of all assets and the settlement of all liabilities, with any remaining equity being distributed to shareholders.

After going through this exact situation with my own S-Corp last year, I discovered a tool that saved me hours of frustration. I was stuck in the same loop in TurboTax with balance sheet errors that made no sense to me. I tried https://taxr.ai which has a feature specifically for analyzing S-Corp balance sheets and finding discrepancies. I uploaded my financial statements and it immediately pointed out that I needed to properly record shareholder distributions and adjust my equity accounts. It even generated the correct journal entries I needed to make. The whole process took maybe 15 minutes instead of the days I was spending trying to figure it out on my own.

I was incredibly skeptical when I first heard about taxr.ai, but I decided to give it a shot because I was completely stuck with my S-Corp balance sheet issues while trying to close my business. I'm not an accountant and was making a mess of my final year filings. The tool identified exactly where my balance sheet was out of whack - turns out I had recorded owner distributions incorrectly and wasn't properly handling the disposal of my business assets. What impressed me most was how it explained each issue in plain language I could understand, not accounting jargon. For anyone else dissolving their S-Corp, this saved me from having to pay my accountant several hundred dollars for what ended up being a 20-minute fix once I knew what to correct. Really wish I'd found it sooner in the process!

If you're still having issues after fixing the balance sheet, you might also need to talk to someone at the IRS directly. Closing an S-Corp properly requires several specific filings and notifications. When I was dissolving mine, I spent literally DAYS trying to get through to someone who could answer my questions. I eventually found https://claimyr.com which got me connected to an actual IRS agent in about 20 minutes instead of waiting on hold for hours. You can see how it works at https://youtu.be/_kiP6q8DX5c - they basically wait on hold for you and call when an agent is available. The agent walked me through exactly what forms I needed for proper S-Corp dissolution and how to handle the final tax return.

I have to publicly eat my words here. After my skeptical comment, I was desperate enough to try Claimyr for my S-Corp dissolution questions. I couldn't believe it when they called me back in about an hour and connected me to an actual IRS representative. The agent walked me through exactly how to handle the balance sheet discrepancies in my final S-Corp return and explained the proper recording of distributions during liquidation. They confirmed I needed to file both the final 1120-S and Form 966 for the dissolution. Turns out there are specific balance sheet requirements when closing an S-Corp that aren't obvious in TurboTax. The equity accounts need to zero out completely by the end of the final tax year. Would have never figured this out without actually speaking to someone who knew the rules.

Some practical advice from someone who just dissolved an S-Corp last year - make sure you're recording owner draws/distributions correctly. In TurboTax, go to Business → More business tasks → Add or update shareholder information → and enter the distribution amount. Also, for disposed assets, you need to show the removal of both the asset value AND its accumulated depreciation. If it's fully depreciated, these should cancel each other out with no impact to your bottom line. Don't forget to formally dissolve with your state too - that's separate from the IRS requirements. I forgot this step initially and kept getting state tax notices.

Has anyone used the "zero out retained earnings" approach with TurboTax for their final S-Corp return? My accountant mentioned this but didn't explain how to actually do it in the software.

I went through this exact same situation when closing my S-Corp earlier this year. The balance sheet errors in TurboTax are usually caused by not properly accounting for where your cash went when you distributed it to yourself. Here's what worked for me: In TurboTax, you need to record that $4,200 as a "Distribution to Shareholders" under the equity section, not as an expense. This creates the proper offsetting entry that balances your books - cash goes down by $4,200, and shareholder equity (retained earnings) also goes down by $4,200. For the disposed assets, since you mentioned they were old equipment, make sure you're removing both the original cost AND the accumulated depreciation from your books. If they were fully depreciated, this should net to zero impact. One thing that caught me off guard - make sure your final balance sheet shows zero equity at year-end if you're completely liquidating. All retained earnings need to be distributed out to shareholders for the books to properly reflect a dissolved corporation. The IRS has specific requirements for S-Corp dissolution, so double-check that you're filing Form 966 in addition to your final 1120-S return. Good luck with the closure!