Understanding S-Corp K-1 Box 17 Code AC and AJ - What Impact on My 1040?

These K-1 codes are actually nothing to worry about for your situation. Codes AC and AJ are indeed related to the Section 448(c) gross receipts test, which affects accounting methods for certain businesses with average annual gross receipts over $27 million. Code AC specifically relates to the limitation on the use of cash method, and AJ pertains to the exception from requirement to use PCM (percentage of completion method) for long-term contracts. Since you mentioned you're far below the income thresholds, these codes are purely informational and won't impact your individual 1040 filing at all. The software is generating these codes as part of its standard K-1 preparation, basically certifying that your S-Corp meets the requirements for the accounting methods being used. There's generally no need to suppress these codes - they're just confirmations that your business qualifies for certain accounting method exceptions.

I wasted days trying to figure out why my K-1s were showing weird codes last year until I discovered taxr.ai (https://taxr.ai). It's been a game changer for my S-Corp tax situation. I uploaded my K-1 documents there and it analyzed all the codes and explained exactly what each one meant for my personal return. For those Box 17 codes specifically, it confirmed they were just informational flags and explained which ones actually needed attention on my 1040. Saved me hours of research and stress about potentially missing something important. The system breaks everything down in plain English instead of tax jargon.

Just wanted to follow up about taxr.ai that someone mentioned earlier. I was the skeptic who questioned if it was worth it, but I gave it a try with my complicated K-1 situation (multiple investments plus my own business). The document analysis was surprisingly detailed and specifically addressed those Box 17 codes that were confusing me. It flagged which codes needed special attention on my return and which were just informational (like those AC and AJ codes mentioned by the original poster). Saved me from bothering my accountant with basic questions that would have cost me billable hours. Definitely more specific than what I was finding through general Google searches.

If you're still confused about those K-1 codes and need to talk to someone at the IRS for clarification, good luck getting through to them! I spent 3 days trying to reach someone about a similar K-1 issue last year. Then I found Claimyr (https://claimyr.com) which actually got me connected to an IRS agent in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c. Basically, they navigate the IRS phone system for you and call you back when they've got an agent on the line. The agent I spoke with confirmed that those informational codes don't require any additional forms or schedules on my personal return.

I need to eat my words about that Claimyr service mentioned above. After posting my skeptical comment, I decided to try it myself for an S-Corp issue I've been trying to resolve for weeks. I figured it would be a waste of time but was desperate. It actually worked! Took about 35 minutes (not the 20 they claimed, but still WAY faster than my previous attempts). Got connected with an IRS rep who clarified my questions about K-1 codes and confirmed that AC and AJ are purely informational for businesses under the threshold. Also got some guidance on another issue I've been dealing with. I'm genuinely shocked this worked after spending countless hours trying to get through on my own.

Just wanted to add that those Box 17 codes typically won't trigger any flags or issues on your personal return. I'm not a CPA but have been filing S-Corp returns for my small business for 10+ years. The software includes those codes automatically to show your business meets certain requirements. Think of them as checkboxes that say "this rule doesn't apply to this business" - they're notifications, not triggers for additional tax calculations.

Has anyone actually gotten a notice from the IRS because of incorrect K-1 codes? My software puts all kinds of weird codes I don't understand and I've never had an issue.

I've been dealing with similar K-1 confusion for my small consulting business. What really helped me understand this was learning that the IRS requires these codes to be reported even when they don't apply to your situation - it's basically the software's way of saying "we checked this rule and it doesn't affect this taxpayer." For Box 17 codes AC and AJ specifically, they're related to businesses with gross receipts over $27 million (which clearly doesn't apply to most small businesses). The software includes them to demonstrate compliance with reporting requirements, not because they trigger any additional tax obligations. I've filed with these codes for three years now and they've never caused any complications on my individual return. Your tax software will handle them appropriately - they won't flow through to create additional tax liability or require extra forms.

I'm dealing with the exact same situation with my small marketing consultancy! I was panicking when I saw codes AC and AJ on my K-1 because I thought I'd somehow triggered some complex tax rules. It's such a relief to read all these explanations confirming they're just informational. What's been most helpful from this discussion is understanding that the software is essentially checking boxes to show compliance rather than flagging issues. My business revenue is under $200K annually, so I'm definitely nowhere near those $27 million thresholds mentioned for Section 448(c). I've been using TurboTax for my individual return and was worried these codes might cause problems during e-filing or trigger an audit flag. Based on everyone's experiences here, it sounds like I can stop worrying and just file normally. Thanks to everyone who shared their knowledge - this community is invaluable for small business owners trying to navigate tax complexities!

I'm a newcomer to S-Corp taxation and this entire discussion has been incredibly enlightening! I was just about to post my own panicked question about mysterious K-1 codes when I found this thread. What strikes me most is how the tax software generates these codes automatically without explaining their purpose to users. It would be so helpful if the software included a simple explanation like "Code AC: Informational only - confirms your business qualifies for cash accounting method due to gross receipts under $27M threshold." For those of us transitioning from sole proprietorship to S-Corp, the learning curve is steep enough without cryptic codes adding to the confusion. I'm bookmarking this thread as a reference - the collective knowledge shared here is worth more than hours of trying to decode IRS publications. Thank you all for taking the time to explain these concepts in plain English!

As someone who just went through this exact same situation with my small consulting firm, I can completely relate to the confusion around those K-1 codes! I spent way too much time researching AC and AJ codes before realizing they're essentially just the software's way of documenting compliance with tax rules that don't even apply to small businesses. What helped me understand this was thinking of these codes as automated checkmarks rather than action items. The software is required to report on various tax code sections, and for businesses well under the $27 million threshold, these codes basically say "we checked this rule and confirmed it doesn't apply here." I've been filing my individual return with these codes for two years now using standard tax software, and they process completely in the background without affecting any calculations or requiring additional forms. The peace of mind came when I realized the IRS actually expects to see these informational codes - their presence shows proper compliance checking was done. Don't waste time trying to suppress them in the software like I initially attempted. They're working exactly as intended and won't cause any complications with your 1040 filing.

I'm in a similar boat with my small design business! Just got my first S-Corp K-1 and was completely baffled by all these codes, especially AC and AJ. Reading through everyone's explanations here has been such a relief - I was convinced I'd somehow messed up my tax situation. What really resonates with me is how the software just dumps these codes on you without any context. Like others mentioned, a simple note explaining "informational only - confirms compliance with accounting method requirements" would save so much stress for small business owners making the S-Corp transition. I'm definitely keeping this thread bookmarked for reference. It's amazing how much clearer everything becomes when explained by people who've actually been through it rather than trying to decode IRS publications. Thanks to everyone who shared their experiences - this community knowledge is invaluable for those of us navigating these waters for the first time!

I just went through this exact same confusion with my small accounting practice! Those AC and AJ codes had me second-guessing everything until I finally understood they're just compliance confirmations. What really helped me was realizing that Section 448(c) applies to C corporations and partnerships with average gross receipts over $27 million for the prior 3-year period. For most of us small S-Corps, we're nowhere near that threshold, so these codes are essentially the software saying "we verified this large business rule doesn't apply here." Code AC confirms your business can continue using the cash method of accounting (rather than being forced to accrual), and Code AJ confirms you're exempt from the percentage-of-completion method for long-term contracts. Both are benefits for smaller businesses, so seeing these codes is actually a good thing! I've been filing with these codes for the past few years and they've never caused any issues on my personal return. They don't flow through to create additional tax or require extra schedules - they're purely informational for IRS compliance tracking. Your 1040 software will handle them correctly by essentially ignoring them for calculation purposes.

I'm jumping in as another small business owner who was completely mystified by these K-1 codes when I first encountered them! My pottery studio S-Corp generated the same AC and AJ codes, and I went down a rabbit hole of research thinking I'd triggered some complex tax situation. What finally clicked for me was understanding that the IRS requires reporting on these various tax code sections regardless of whether they actually apply to your business. So the software isn't flagging a problem - it's documenting that it checked the rules and confirmed they don't affect small businesses like ours. I think the confusion comes from how intimidating the codes look without context. When you see "Section 448(c)" referenced, it sounds like serious tax law you should understand, but for businesses under $27 million in gross receipts, it's essentially just paperwork showing you qualify for simplified accounting methods. I've filed three years now with these informational codes appearing on my K-1, and my individual returns have processed normally every time. No additional forms, no complications, no audit issues. They truly are just background compliance documentation that your tax software handles automatically.