This is for the On Line PRC
S Corp ownership provides two income streams :
1) W2 income
2) K1 1120-S
On the K1, Box1 (Ordinary Business Income) is subject to federal and state taxation on the individuals 1040 but it is NOT the amount distributed from the S Corp to the owner. It is also currently eligible for 20% QBI deduction.
On the K1, Box 16(D) that is the amount that is actually distributed to the owner. It is not subject to taxation but it is the amount that flows to the owner as cash.
The Box16 amount is never equal to Box1. Box 16 is usually much lower but has sometimes been higher. How do I model the K1 amounts so that taxes are applied correctly while also allowing accurate cash flow?
@dblpnk2000 I'm definitely not an expert on S-Corp tax returns, but I'm looking at the K1 1120-S right now and see that box 16 (don't see a section D) is called "Items affecting shareholder basis", and there are a bunch of other boxes related to interest income, ordinary dividends, qualified dividends, royalties, and so on. I **THINK** the correct number to enter in Pralana is box 1. Pralana will include that in your AGI and calculate taxes accordingly to model what you actually receive. I'm just guessing here, but maybe the reason this doesn't match the amount that flows to you is because you've completed a W-4 form for tax withholding??? Anyway, ordinary income should be entered in the employment income section but the other types (dividends, etc) should problem go under Build > Income > Other Income.
Stuart
@dblpnk2000 I'm definitely not an expert on S-Corp tax returns, but I'm looking at the K1 1120-S right now and see that box 16 (don't see a section D) is called "Items affecting shareholder basis", and there are a bunch of other boxes related to interest income, ordinary dividends, qualified dividends, royalties, and so on. I **THINK** the correct number to enter in Pralana is box 1. Pralana will include that in your AGI and calculate taxes accordingly to model what you actually receive. I'm just guessing here, but maybe the reason this doesn't match the amount that flows to you is because you've completed a W-4 form for tax withholding??? Anyway, ordinary income should be entered in the employment income section but the other types (dividends, etc) should problem go under Build > Income > Other Income.
Stuart
@smatthews51 Thank you for taking the time to reply.
Unfortunately it doesn't seem that PRC can be configured to model an S Corp (I'm aware that this is specifically stated - 'we don't model your business'). I've yet to find any software that does. It would mean a major revision to your software and it doesn't seem like the demand is there. As a guess I would think you would add additional controls (in BUILD-INCOME) for S Corp Box1 and Box16 - one used for tax calculations and the other used for cash accounting. However, as I said I don't see a lot of demand for it as a feature after spending hours on various financial message boards.
In a nutshell, taxable income is a function of company profit; What ends up in the checking account is a function of owner basis in the company. These two things will only balance to zero when the S Corp is sold or dissolved.
So on the one hand I have the amount I'm taxed on, on the other hand I have the amount of cash that I actually put into my checking account. These two amounts have no predictable relationship.
If I set things up to get PRC's tax calculations correct (and I have done that using rental property as a work around), then the numbers that PRC transfers to my cash account are not correct - which prevents PRC from making correct optimization projections. Conversely, if I set up the cash flow correctly using "other income" to reflect the actual distributions - it results in error in the amount of tax I pay - which prevents PRC from making correct optimization projections.
You have a wonderful product. It's the best that I've seen. I will recommend it to my friends who fit the normal employed/ self employed mold.
