The Retained Earnings account shows the total of your company income and expenses from all previous years. Keep in mind retained earnings is an equity account, so you’re not shifting balance, you are just adjusting the equity to the correct account/s based on percentage of ownership You are entitled to take what you have been taxed on :)Īllow me to provide some information about Retained Earnings and the report that you can run, BeyondTheBox. Use your K1 as a guide of your basis each year to make your R/E to equity adjusting entry. You only have a retained earnings in a C Corp (or C Corp that elects S-Corp treatment - these retained earnings are taxed as capital gains if not passed to the member.) Electing S-Corp treatment doesn’t change that. There is no such thing as retained earnings in a sole prop or partnership. Basis would still have to be tracked via the K1’s and moving the R/E to the appropriate members based on percentages. A standard LLC that elects to be taxed as an S Corp would still have partner equity accounts for bookkeeping purposes. This would also take into consideration reductions to basis such as 50% meals or fines disallowed. If it was originally a C Corp that elected S treatment I would use the shareholder equity and move retained earnings to your account based off the K1 information to track basis. It is passed to you personally and taxable whether you take the profit out of the business or not. I would agree, an S Corp is a pass through entity, thus there are no retained earnings.
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