USA S Corp State Income Tax

[Vinny Williams]

For a pass through entity that receives a late penalty from the state department of revenue (its state of operation) should the penalty be debited to an expense account or added as a stockholders distribution.

Thanks!

 

[BIG E]

Neither.
It's a nondeductible expense that is a reduction of the AAA.

 

[Vinny Williams]

Neither.
It's a nondeductible expense that is a reduction of the AAA.

Isnt the AAA similar to the retained earnings account? Why cant it just be processed as an expense to the owner of the company and circumvent our expense accounts altogether and we just show a cash outflow through the distributions account?

 

[BIG E]

Because a distribution effects the shareholder's basis, whereas nondeductible expenses charged to AAA don't.

 

[Vinny Williams]

Because a distribution effects the shareholder's basis, whereas nondeductible expenses charged to AAA don't.

Thank you!