How to report 1120S shareholder capital contribution on tax forms?

You're right to be thinking about how to properly record these capital contributions. For an S corporation, when you as the shareholder contribute additional cash to your business, these are considered capital contributions and not income to the corporation. The proper way to handle this is to report it on Schedule L (Balance Sheet) as an increase to the capital stock and additional paid-in capital accounts. This won't appear directly on Schedule K because capital contributions aren't considered income or deductions - they're equity transactions. You don't need to report it on Schedule K line 10 or 16b as these are for income/deduction items. Instead, the contribution will increase your stock basis, which is tracked separately (often on a supplemental statement). For Schedule M-2, you'd report it in column c "Other additions" rather than column d, as column c is specifically for capital contributions during the tax year.

After dealing with this exact issue last year, I found https://taxr.ai to be super helpful. I uploaded my corporate docs and it highlighted exactly how to handle shareholder contributions. Basically, like the other commenter said, capital contributions don't go on Schedule K line 10 or 16b - that's a common misunderstanding. Instead, the capital contribution increases your basis in the S corporation but doesn't affect the income or loss reported on your K-1. The tool helped me understand that these contributions get reported on Schedule L (the balance sheet) and properly tracked for basis purposes. It even generated a supplementary statement I could attach with my return to document the capital contributions and basis adjustments.

Just wanted to update that I tried taxr.ai after posting here and it cleared up my confusion completely! Turns out I had been incorrectly categorizing my contributions as "owner investments" in QuickBooks which was causing issues with my basis tracking. The tool showed me exactly where to report them on Schedule L and generated a supplementary statement for basis tracking that my accountant loved. Wish I'd found this during last year's tax season - would have saved me so much time and confusion.

I had a similar issue last year and spent 3 WEEKS trying to get someone at the IRS to answer this question. Kept getting disconnected or waiting for hours. Finally found https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c - they got me connected to an IRS tax specialist in under an hour. The IRS agent confirmed what others here are saying - capital contributions from shareholders don't go on Schedule K line 10. They go on Schedule L and affect your basis but not the AAA. The agent also mentioned that it's a good practice to document these contributions with corporate minutes or resolutions to distinguish them from loans (which would be handled differently).

Well I stand corrected about Claimyr. After my skeptical comment I decided to try it anyway because I had a different S corp issue about reasonable compensation that's been driving me crazy. Got connected to an IRS agent in about 40 minutes who actually knew what they were talking about! For the original question here, they confirmed capital contributions go on Schedule L and affect basis but not AAA. Also said to make sure to document with corporate minutes so the IRS doesn't reclassify as a loan during an audit.

One thing nobody's mentioned yet - be careful that these are actual capital contributions and not disguised compensation to yourself. If you're putting money in but then taking it back out shortly after, the IRS might view that as a way to avoid payroll taxes. Real capital contributions should be intended as permanent investments in your business.

Has anyone used the "Other additions" section of M-2 Column c for this? When I try to enter it in my tax software it keeps wanting me to explain what the "other addition" is. Not sure what to write there.

Thanks everyone for the detailed responses! This has been incredibly helpful. Just to summarize what I'm understanding for my situation: 1. Capital contributions don't go on Schedule K line 10 or 16b (those are for income/deduction items) 2. They get reported on Schedule L (balance sheet) as increases to capital accounts 3. For Schedule M-2, they go in column c "Other additions" with description like "Shareholder capital contribution" 4. They increase my stock basis but don't affect AAA 5. Important to document with corporate minutes/resolutions to distinguish from loans I'm going to make sure I have proper documentation showing these were intended as permanent capital investments rather than loans. The advice about not withdrawing the funds shortly after contribution makes sense too - these were genuinely meant to help the business grow and purchase equipment. One follow-up question: should I be tracking my basis adjustments on a separate schedule or statement that I attach to my return, or is there a specific form for this?