Question

Which of the following items, if any, decreases an s corporation's aaa?

a. distribution from earnings and profits.
b. expenses related to tax-exempt income.
c. depletion in excess of basis.
d. section 1231 loss.

Answer 1

The correct answer is option a. The correct option that decreases an S corporation's AAA is distribution from earnings and profits.

Step-by-step explanation:

To determine which items decrease an S corporation's accumulated adjustments account (AAA), we need to understand what the AAA represents. The AAA is essentially a measure of the S corporation's accumulated earnings and profits that have not been distributed to its shareholders as dividends.

Based on this understanding, the correct option that decreases an S corporation's AAA is a. distribution from earnings and profits.

When an S corporation distributes earnings and profits to its shareholders as dividends, it reduces the amount of accumulated earnings and profits that have not been distributed, which in turn decreases the AAA.