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 (Book-Tax Adjustments).
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 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 (Book-Tax Adjustments).
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.

Partnership (Form 1065)

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 (Book-Tax Adjustments).
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.