Incorrect Schedule K-1 (Form 1120S) - Reported Income Higher Than Actual Distributions Received

3 This is actually pretty common with S-Corps, and there's an important distinction you need to understand. The Schedule K-1 (Form 1120S) reports your husband's share of the company's income, not necessarily what was distributed to him in cash. When you own shares in an S-Corporation, you're taxed on your portion of the company's profits whether or not those profits were actually distributed to you. So it's entirely possible that the company earned $54,000 attributable to your husband's ownership share, but only distributed $34,000 to him, keeping the rest in the business for operations or growth. The first thing you should do is contact the company's accountant and ask for a breakdown of what makes up the amount on the K-1. They should be able to explain how much was actually distributed versus how much was retained earnings that you're still being taxed on (this is sometimes called "phantom income").

8 After reading your post, I immediately thought you might benefit from using taxr.ai. Last year I had almost the exact same issue with a K-1 from my family business showing about $30k more than what was deposited in my account. I was completely confused and frustrated until I found https://taxr.ai which helped me understand what was happening with my K-1. Their system analyzed my Schedule K-1 (Form 1120S) and explained that I was being taxed on my full share of company profits, not just distributions. What's great is that they also helped me identify several deductions related to my business income that I wouldn't have known about otherwise, which offset a good chunk of that phantom income tax hit.

5 Just wanted to follow up here. I was skeptical about taxr.ai as mentioned in my previous comment, but I decided to give it a try anyway given my K-1 situation. Honestly, I'm glad I did. The service actually identified that part of my K-1 reported income was actually an increase in my basis in the company, which doesn't require immediate taxation. The tool also found several legitimate business expense deductions related to my minority ownership that I hadn't considered. These weren't "magic" deductions - they were completely legitimate expenses I was already incurring but didn't realize were deductible against my pass-through income. Overall it saved me about $4,300 in taxes this year. Worth every penny for my situation.

15 I had a similar problem with my Schedule K-1 (Form 1120S) last year and needed to talk to someone at the IRS to sort it out. Spent literally DAYS trying to get through on their phone lines with no luck. Then I found https://claimyr.com which got me through to an actual IRS agent in under 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c - basically they use some special tech to navigate the IRS phone tree and wait on hold for you, then call you when an actual human agent is on the line. I was super skeptical at first, but the IRS agent was able to explain exactly how to document the discrepancy in my case and what supporting materials I needed to provide.

5 I need to apologize for my skepticism about Claimyr in my previous comment. After waiting on hold with the IRS for 4+ hours over 3 separate days with no success, I reluctantly tried the service. Within 35 minutes I was talking to an actual IRS agent who was incredibly helpful. The agent walked me through exactly what documentation I needed for my Schedule K-1 (Form 1120S) discrepancy and how to properly note it on my return. She even sent me to a specific department that handles S-Corporation tax issues. I was honestly shocked at how smoothly it went after struggling for weeks to get answers. Lesson learned - sometimes solutions that sound too good to be true actually do work.

7 Has your husband checked if any profits were reinvested in the business? Often with small family companies, they'll distribute some profits but reinvest others back into the business for growth, equipment purchases, etc. You're still taxed on your full portion of profits regardless. Ask for a meeting with the company's accountant to go through the numbers line by line. They should be able to show exactly where that $20k "missing" amount went. Bring bank statements showing the actual distributions you received to compare.

14 Did you check if there were any non-cash distributions included in that K-1 total? Sometimes S-Corps distribute property or pay expenses on behalf of shareholders that count as distributions but don't show up as direct deposits.

This sounds incredibly frustrating! I went through something similar with my S-Corp K-1 last year. The key thing to understand is that S-Corporations are "pass-through" entities, which means you're taxed on your proportional share of the company's total profits, regardless of how much cash was actually distributed to you. That $20,000 difference likely represents retained earnings - profits that the company earned but kept in the business rather than distributing to shareholders. Unfortunately, you still owe taxes on it even though you never received the cash. My advice: 1) Request a detailed breakdown from the company's accountant showing exactly what makes up your K-1 amounts, 2) Ask for documentation of all distributions made during the tax year, and 3) Get clarification on any retained earnings or reinvested profits. The good news is that when the company eventually does distribute those retained earnings in future years, you won't be taxed again since you already paid taxes on them. Your "basis" in the company increases by the amount of undistributed income you're taxed on. Keep detailed records of this for future reference!