Form 1065, U.S. Return of Partnership Income, Form 1120, U.S. Corporation Income Tax Return, and Form 1120-S, U.S. Income Tax Return for S Corporations each include Schedule L, the balance sheet, and each return requires the balance sheet to be completed when the business has receipts and/or assets in excess of specified amounts.
The preparer may wish to complete the balance sheet in a return even if it isn't required, but if the balance sheet is completed both the beginning and ending balances on both sides must balance. After exiting Schedule L, if you receive the message, "Total assets do not equal total liabilities and equity", the balance sheet is out of balance in either the beginning balances, the ending balances, or both, and you won't be able to mark the return for electronic filing until it is in balance.
Many ending balances will need to be entered from the information provided from the business as their amount cannot be inferred from the data in the tax return, e.g., Cash or Accounts Payable. The ending balance for the following items automatically pulls to the balance sheet from the entries made in the tax return:
- Inventories - The beginning and ending amounts entered on Form 1125-A Cost of Goods Sold are pulled to the Balance Sheet. Any adjustments to inventory amounts should be made on Form 1125-A because any change in inventory values will impact the Cost of Goods Sold by the entity and ultimately affect the income being reported.
- Buildings & Other Depreciable Assets - If the assets have been entered in the depreciation module, the original cost or basis in any assets subject to depreciation will automatically pull to the balance sheet.
Accumulated Depreciation - The amount that pulls to the ending Accumulated Depreciation balance consists of the total accumulated depreciation on ALL depreciable assets that have been entered in the depreciation module.
TaxSlayer Pro does not track the accumulated impact of any adjusting entries to the ending accumulated depreciation amount, and it is the responsibility of the preparer/accountant to track any adjustments that are made to the accumulated depreciation balance from year to year. Although adjustments to the ending accumulated depreciation balance can be made on the Balance Sheet, any adjustment made in this section will not carry to the tax return where the underlying depreciable asset was entered.
- Land - Land entered in the depreciation module as a non-depreciable asset automatically pulls to the ending balance for the asset.
- Intangible Assets - An intangible asset being amortized in the depreciation module automatically pulls to the ending balance for the asset.
- Accumulated Amortization - The amount that pulls to the ending Accumulated Amortization balance consists of the total accumulated amortization on all intangible assets that have been entered in the tax return that are subject to amortization.
Note: This is a guide on addressing the warning that is given when Schedule L is out of balance in TaxSlayer Pro. This is not intended as tax advice.
IRS: Instructions for Form 1065
IRS: Instructions for Form 1120S
IRS: Instructions for Form 1120
Form 1065 - Schedule L - Balance Sheet per Books
Form 1120S - Schedule L- Balance Sheet per Books