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The purpose of Schedule M-1 Reconciliation of Income (Loss) and Analysis of Unappropriated Retained Earnings per Books 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. Here is a list of common book-tax differences found on 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

To enter this information in the TaxAct® 1120 program:

  1. From within your TaxAct return (Online or Desktop), click Federal (on smaller devices, click in the top left corner of your screen, then click Federal).
  2. Click Reconciliation of Income.
  3. Continue with the interview process to enter all of the appropriate information.

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