Question

Schedule M-1 of Form 1120 is used to reconcile financial net income with taxable income reported on the corporation's income tax return as follows: net income per books + additions - subtractions = taxable income. Which of the following items is an addition on Schedule M-1?

1) Proceeds of life insurance paid on death of key employee.
2) Tax-exempt interest.
3) Excess of capital losses over capital gains.
4) Tax depreciation in excess of book depreciation.
5) None of these choices are correct.

Answer 1

Tax depreciation greater than book depreciation is the item that would be added on Schedule M-1, which reconciles book income with taxable income for corporations. Option 4.

Step-by-step explanation:

Schedule M-1 of Form 1120 is utilized by corporations to reconcile book income with taxable income for income tax reporting purposes. Within this reconciliation process, certain items are added to net income per books to arrive at taxable income. Out of the choices listed, tax depreciation in excess of book depreciation(4) is an item that would be added on Schedule M-1 as such depreciation differences often arise due to varying methods and rates of depreciation for tax purposes versus book purposes.