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?
A) Tax depreciation in excess of book depreciation.
B) Proceeds of life insurance paid on death of key employee.
C) Excess of capital losses over capital gains.
D) Tax-exempt interest.
E) None of the above.

Question

Quizplus · Accepted Answer

Excess of capital losses over capital gains is an addition on Schedule M-1 because it is a deduction for book purposes but not for tax purposes, thus it needs to be added back to reconcile to taxable income.

Schedule M-1 of Form 1120 Is Used to Reconcile Financial