How does Lacerte calculate the Schedule M-1?

This article will help you understand how the M-1 is calculated and where to enter adjustments for the Schedule M-1, depending on your tax type.

Before you start:

• Variations between book depreciation and tax depreciation are the most common cause of discrepancies reconciled on a Schedule M-1.
• If tax depreciation is higher than book depreciation, it generally increases taxable income on the M-1.
• If book depreciation is higher, it generally decreases taxable income.

Table of contents:

Corporate (Form 1120)

The Form 1120 Schedule M-1, line 1, net income per books, is calculated as follows:

• Schedule M-1, line 10 (income or loss from page 1, line 28)
• + Schedule M-1, Lines 7 & 8 (increases)
• -  Schedule M-1, Lines 2-5 (decreases)
• = Schedule M-1, Line 1 (net income per books)

Lacerte will automatically generate most increases and decreases based on your entries throughout the return that indicate a difference between book and tax amounts. 

If you need to enter an M-1 adjustment manually, or override an automatic increase or decrease:

1. Go to Screen 39.1, Schedule M-1,M-3.
2. To alter the M-1, line 2, enter an amount in Federal income tax (automatic if accruing).
3. To alter the M-1, line 3, enter an amount in Excess of capital losses over capital gains [O].
4. To alter the M-1, line 4, enter an amount in the Income Subject to Tax Not Recorded on Books subsection.
5. To alter the M-1, line 5, enter an amount in the Expenses Recorded on Books not Included on this Return subsection.
6. To alter the M-1, line 7, enter an amount in the Income Recorded on Books not Included on this Return subsection.
7. To alter the M-1, line 8, enter an amount in the Deductions not Charged Against Book Income subsection.

S Corporate (Form 1120S)

The Form 1120S Schedule M-1, line 1, net income per books, is calculated as follows:

• Schedule M-1, line 8 (income or loss from Schedule K, line 1)
• + Schedule M-1, lines 5 & 6 (increases)
• -  Schedule M-1, lines 2 and 5 (decreases)
• = Schedule M-1, line 1 (net income per books)

Lacerte will automatically generate most increases and decreases based on your entries throughout the return that indicate a difference between book and tax amounts. 

If you need to enter an M-1 adjustment manually, or override an automatic increase or decrease:

1. Go to Screen 31.1, Schedule M-1, M-3.
2. There are many inputs and/or overrides that affect lines 2.
3. Lines 2, 3, 5, & 6 do have the Jump to Input feature available. To access the Jump to Input feature you must click on the dashed lines, not the amount box.
4. Line 2 jump to input takes you directly to a single input on Screen 31.1.
5. Lines 3, 5, & 6 offer a list of possible inputs that will affect that line; which input to use is dependent on the taxpayer's specific circumstances.

Partnership (Form 1065)

The Form 1065 Schedule M-1, line 1, net income per books, is calculated as follows:

• Schedule M-1, line 9 income (loss)(Analysis of Net Income (Loss) per return, Line 1) Subtract Line 8 from Line 5.
• + Schedule M-1, Lines 6 & 7 (increases)
• -  Schedule M-1, Line 4 (decreases)
• = Schedule M-1, Line 1 (net income per books)

Lacerte will automatically generate most increases and decreases based on your entries throughout the return that indicate a difference between book and tax amounts. 

If you need to enter an M-1 adjustment manually, or override an automatic increase or decrease:

1. Go to Screen 27.1, Schedule M-1 (Book-Tax Adjustments).
2. There are many inputs and/or overrides that affect lines 2,3, 4, 6 & 7.
3. Lines 2, 3, 4, 6 & 7 do have the Jump to Input feature available.
4. To access the Jump to Input feature:
5. Click on the amount box for lines 2 & 3
6. Click on the dashed lines for Lines 4, 6 & 7

NOTE: The Jump to Input feature on Lines 3, 4a, 4b, & 7a will take you to input detail screens here than Screen 27.1. Adjustments can be made in those screens or in the corresponding inputs in Screen 27.1