In an S Corporation return, when the Accumulated Adjustments Account (Schedule M-2) includes Retained Earnings (Schedule L), manual overrides may be necessary for accurate calculation of taxable capital on WV SPF-100.
Drake Software has received guidance from West Virginia Department of Revenue that has clarified how taxable capital is to be calculated when an S Corporation has both:
- An Accumulated Adjustments Account (AAA) balance on Form 1120S Schedule M-2
- and Retained Earnings on Form 1120S Schedule L (line 24).
The Drake West Virginia program uses both the AAA and Retained Earnings to calculate taxable capital because it cannot determine whether the AAA includes Retained Earnings. If the AAA includes Retained Earnings, an amount will be duplicated in the calculation. In that case, override entries are necessary for an accurate calculation.
To determine whether override entries are necessary to correct the calculation of taxable capital, view the Federal return:
- If there is an AAA balance on Schedule M-2 and also Retained Earnings on Schedule L, line 24,
- and if the AAA on Schedule M-2
- Does not include Retained Earnings, then no adjustment is needed. Both the AAA balance and the Retained Earnings balance are used by the software to calculate taxable capital.
- Does include Retained Earnings, only the AAA balance should be used. On WV screen B enter the appropriate amount (usually it will be zero) in columns 1 and 2 of field 3 Retained earnings appropriated & unappropriated and, if necessary, enter the AAA balance in columns 1 and 2 of field 6 Accumulated adjustments accounts.