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.

• Guaranteed payments (1065 only)

Income on tax return, not included on books

• 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
• 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

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
• Prepaid expenses
• Tax loss on sale of assets in excess of book loss on sale of assets
• Accrued vacation and bonus

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

1. From within your TaxAct return, click Federal. 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.