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The purpose of the Schedule M-1 is to reconcile the entity’s accounting income (book income) with its taxable income. Because tax law is generally different from book reporting requirements, book income can differ from taxable income. Below is a list of common book-tax differences found on the Schedule M-1. The list is not all-inclusive.

  • Federal income tax per books
  • Excess of capital losses over capital gains

Income on tax return, not included on books

  • Federal tax credit income
  • Tax gain on sale of assets in excess of book gain on sale of assets
  • Installment sales

Expenses on books, not included on tax return

  • Book depreciation in excess of tax depreciation
  • 50% of travel/meals and entertainment not deductible on tax return
  • Charitable contributions
  • Fines and penalties
  • Officer's life insurance premiums
  • Prepaid expenses
  • Book loss on sale of assets in excess of tax loss on sale of assets
  • Accrued vacation and bonus
  • Political contributions
  • Expenses incurred in earning tax exempt interest
  • Portion of organizational & start-up costs not included on tax return

Income on books, not included on tax return

  • Tax-exempt interest
  • Book gain on sale of assets in excess of tax gain on sale of assets
  • Installment sales
  • Officers' life insurance proceeds

Deductions on tax return, not included on books

  • Tax depreciation in excess of book depreciation
  • Charitable contributions
  • Prepaid expenses
  • Tax loss on sale of assets in excess of book loss on sale of assets
  • Accrued vacation and bonus
  • U.S. Production Activities Deduction

You will enter this information into the TaxAct® program as follows:

  1. From within your TaxAct return (Online or Desktop), click on the Federal tab. On smaller devices, click the menu icon in the upper left-hand corner, then select Federal
  2. From the Federal Quick Q&A Topics screen, click Reconciliation of Income.
  3. The program will proceed with the interview questions for you to enter or review the appropriate information.

 


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