Line 3, “Guaranteed payments” – This is the amount of guaranteed payments, excluding health insurance amounts, included on Schedule K, line 4.Additional income items reported for tax purposes, but not included in book income, are entered on the M1 screen, line 2. The increased income amount flows to this line automatically. The increased income is a tax item only and is not generally included in book income. Line 2, “Income included on Schedule K, lines 1, 2, 3c, 5, 6a, 7, 8, 9a, 10, and 11, not recorded on books this year” – Certain credit forms require that the amount of credit be included in other income.The end result reported on Schedule M-1, line 1, should match the amount reported on the financial reporting statements for the partnership’s book income. The calculation for the Form 1065, Schedule M-1, is as follows:
Schedule M-1, line 1, “Net income (loss) per books,” is not available without book-to-tax adjusting entries. The calculation for Schedule M-1 is done in reverse from the form itself. Schedule M-1 is required when the gross receipts of the partnership are greater than $250,000, or the total assets are greater than $1,000,000. How is book income calculated on Schedules M-1 and M-3 on Form 1065?
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