Where to Enter Distributions in Lacerte
Distributions go on screen 32, Schedule M-2, on an 1120S. They are not a deduction and do not belong on the deductions screen: they reduce the accumulated adjustments account, appear on Schedule K line 16d, and flow to box 16 code D of each K-1.
- Detail
- Screen 32, Schedule M-2
- Distributions
| Trial balance account | Lacerte screen and field | Lands on |
|---|---|---|
| Shareholder distributions | Screen 32, Schedule M-2, distributions | Schedule K line 16d and K-1 box 16 code D |
| Owner pay miscoded to an expense | Move it to screen 32. It is not a deduction | Nowhere on page 1 |
| Personal expenses paid by the company | Screen 32 as a distribution, or officer pay on screen 2 | Schedule K line 16d, or page 1 line 7 |
| Nondeductible expenses | Screen 20, Schedule K | Schedule K line 16c, reducing AAA and basis |
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Try it freeWhere to Enter Distributions in Lacerte on a trial balance
| Acct # | Account | Debit | Credit |
|---|---|---|---|
| 1000 | Cash | 42,800.00 | |
| 1200 | Accounts receivable | 68,500.00 | |
| 1300 | Inventory | 55,000.00 | |
| 1500 | Equipment | 145,000.00 | |
| 1510 | Accumulated depreciation | 47,500.00 | |
| 2000 | Accounts payable | 28,400.00 | |
| 2100 | Accrued expenses | 9,200.00 | |
| 2400 | Notes payable | 92,000.00 | |
| 2450 | Due to shareholder | 15,000.00 | |
| 3000 | Common stock | 10,000.00 | |
| 3900 | Retained earnings | 86,300.00 | |
| 3950 | Shareholder distributions (the account this page is about) | 52,000.00 | |
| 4000 | Gross receipts | 612,000.00 | |
| 5000 | Cost of goods sold | 318,000.00 | |
| 6000 | Salaries and wages | 88,000.00 | |
| 6050 | Officer compensation | 72,000.00 | |
| 6300 | Depreciation expense | 21,500.00 | |
| 6900 | Other operating expenses | 37,600.00 | |
| Total | 900,400.00 | 900,400.00 |
Example journal entries
| Account | Debit | Credit |
|---|---|---|
| Shareholder distributions | 52,000.00 | |
| Cash | 52,000.00 |
| Account | Debit | Credit |
|---|---|---|
| Shareholder distributions | 6,400.00 | |
| Other operating expenses | 6,400.00 |
Screen 32, and nowhere near deductions
Distributions are a reduction of equity. They never reduce taxable income, they do not appear on page 1, and the screen that handles them is the Schedule M-2 screen.
The reason this page exists is that client books rarely present them that way. An owner takes money out, the bookkeeper codes it to officer pay, consulting, or an account called owner pay, and it lands in deductions. That understates taxable income by the full amount.
What entering them properly drives
A distribution entered on screen 32 does four things at once:
- Reduces the accumulated adjustments account on Schedule M-2
- Appears on Schedule K line 16d
- Flows to box 16 code D of each shareholder's K-1
- Feeds the shareholder's basis computation on Form 7203
That last one is why the amount per shareholder matters, not just the total. A distribution is tax free only to the extent of stock basis, and beyond it the shareholder generally has capital gain on their own return.
Proportionate, or there is a bigger problem
S corporation distributions have to be proportionate to ownership. Disproportionate distributions threaten the single class of stock requirement, which is a far larger issue than the tax on the distribution.
If the books show one shareholder taking materially more than their percentage, that is worth raising. Sometimes it is a timing difference that reverses. Sometimes it is a loan that should be documented as one. Occasionally it is a real problem that needs addressing before the return is filed.
Distributions and compensation are not substitutes
A shareholder who works in the business needs reasonable compensation through payroll, with distributions on top. Zero on page 1 line 7 and a large figure on screen 32 is the most recognizable pattern on a small S corporation return, and the most commonly adjusted.
Tax return treatment
| Form | Line |
|---|---|
| Form 1120S | Schedule K line 16d, Schedule M-2, and K-1 box 16 code D |
| Form 1065 | Schedule K line 19a and item L of the K-1 |
Common questions
Where do I enter distributions in Lacerte?
Screen 32, Schedule M-2, on an 1120S. They reduce the accumulated adjustments account and flow to Schedule K line 16d and box 16 code D of each K-1. They do not go on the deductions screen.
Are distributions deductible?
No. They never reduce taxable income and do not appear on page 1. Owner draws coded to compensation or to an expense account understate taxable income by the full amount, which is the most common equity error on small business books.
Do distributions have to be proportionate?
On an S corporation, yes. Disproportionate distributions threaten the single class of stock requirement, which is a more serious problem than the tax effect. A shareholder taking materially more than their ownership percentage is worth raising before filing.
Where do nondeductible expenses go?
On the Schedule K screen, reported at line 16c. They reduce the accumulated adjustments account and shareholder basis, so netting them into an expense account overstates both and produces K-1s that misstate what the shareholder needs.
Related answers
Go deeper
This page is the short answer. These articles work through the same ground in detail.
Last reviewed October 17, 2026.