Q: Question on M-2 which may not apply. Are distributions on Schedules K-1s always noted as distributions or withdrawals on Schedule M-2?
A: Yes. In general, distributions reported on Schedule K in the business income tax returns are reported on Schedule M-2. However, it is not uncommon to find distributions reported on Schedule M-2 limited to the amount of taxable revenue for the year, which may be less than distributions for the year. Consequently, it is always prudent to identify distributions for a Subchapter S Corporation or for a Partnership by reference to Schedules K-1. If there is more than one owner or partner, the amounts reported on the individual Schedules K-1 will add up to the total amount of distributions reported on Schedule K in the business income tax returns.
Q: How did you arrive at $31,101 in Depreciation? If I take the depreciation of $197,289 from the 1065 tax return less the depreciation of $172,911 under depreciation on the cash flow statement and "other costs" then I come up with $24,378.
A: The $31,101 is the difference between $197,289 reported on the tax return at Line 16c and depreciation expense reported in Footnote 1 on the financial statement as $166,188. The difference between depreciation expenses of $197,289 reported on the tax return and $166,188 reported on the accrual financial statement is $31,101.
Other Costs of $172,911 on the accrual income statement match the $172,911 of Depreciation and Amortization of $172,911 reported on the Statement of Cash Flows. This implies a 2018 amortization expense of $6,723 that is not specifically identified in the accrual financial statements. Note that Schedule L in the business tax returns shows a $6,723 accumulated depreciation amount at Line 12b, which is likely amortization expense for the single year 2018.
Course overview: Schedule M-1 and the Accrual Income Statement