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Screen CAMs - California Income Reconciliation, Accumulated Adjustments (1120)
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Schedule M-1 - Reconciliation of Income (Loss)
Taxable income not on books /… / Return deductions not on books
The application uses the information entered in these fields to complete Schedule M-1 on Form 100S. It transfers detail from federal Screen Ms to the statements attached to these fields.
note
Amounts for
Officer life insurance premiums
and Cash surrender value - officer life
from the federal Ms screen transfer to the AAA or OAA column of Schedule M-2 according to the Schedule M-2 code
field on the federal Ms screen.In the statements attached to the
Book expenses not deducted
and Income on books not on return
fields, you can code the adjustments to be transferred to Form 100S, Schedule K, Other tax-exempt income and/or Nondeductible expenses. Enter a code in the Sch K
field in the statement for each item to transfer to Schedule K. The available codes are shown in the table that follows and in the dropdown. If you do not want an adjustment transferred to Schedule K, leave the Sch K field blank.Sch K Code | Description | Destination |
|---|---|---|
D | Do not transfer to Sch K (This is the default option) | N/A |
K | Schedule K | Schedule K, Other tax exempt income or Nondeductible expenses |
Schedule M-1 adjustments entered in these statements can be coded to transfer to Form 100S, Schedule M-2, Other additions and/or Other reductions. Enter a type code in the statement for the
Sch M-1/Sch M-2 Code
field for each item to transfer to Schedule M-2. The type codes are shown in the tables that follow and in the drop-down list. If you do not want an adjustment transferred to Schedule M-1 or Schedule M-2, leave the Sch M-1/Sch M-2 Code
field blank. The following table lists the available codes in the Taxable income not on books, Book expenses not deducted,
and Income on books not on return
fields. Sch M-1/ Sch M-2 Code | Description | Destination |
|---|---|---|
D | Include in Schedule M-1; do not transfer to Schedule M-2 (This is the default option) | Schedule M-1, Reconciliation |
A | Accumulated adjustments account | Schedule M-2, Other additions or Other reductions |
O | Other adjustments account | Schedule M-2, Other additions or Other reductions |
R | Other retained earnings account | Schedule M-2, Other additions or Other reductions |
T | Timing differences | Timing differences |
X | Exclude from both Schedule M-1 and Schedule M-2 | N/A |
The following table lists the available codes in the
Return deductions not on books
field.Sch M-1/ Sch M-2 Code | Description | Destination |
|---|---|---|
D | Include in Schedule M-1; do not transfer to Schedule M-2 (This is the default option) | Schedule M-1, Reconciliation |
A | Accumulated adjustments account | Schedule M-2, Other additions |
O | Other adjustments account | Schedule M-2, Other additions |
R | Other retained earnings account | Schedule M-2, Other additions |
F | Timing differences | Schedule M-2, Reconciliation Worksheet, Other additions |
C | Accumulated adjustments account and Stock Basis | Schedule M-2, Other additions and Shareholder Basis Worksheet - Other Increases |
T | Other adjustments account and Stock Basis | Schedule M-2, Other additions and Shareholder Basis Worksheet - Other Increases |
E | Other retained earnings account and Stock Basis | Schedule M-2, Other additions and Shareholder Basis Worksheet - Other Increases |
X | Exclude from both Schedule M-1 and Schedule M-2 | N/A |
The adjustments that are coded in the statements attached to the
Income on books not on return
and Return deductions not on books
fields transfer to Schedule M-2, Other additions. The adjustments that are coded in the statements attached to the Taxable income not on books
and Book expenses not deducted
fields transfer to Schedule M-2, Other reductions.The adjustments that are coded to be transferred to Schedule M-2 do not appear in the Schedule M-2 data-entry statements in this input screen; however, they are printed in the Schedule M-2 statements and are included in the amounts shown on the form.
Tax-exempt interest
The application transfers tax-exempt interest from the federal return and U.S. interest from the federal Inc screen to the tax-exempt interest line of Schedule M-1 for income tax filers only. Franchise tax filers are subject to tax on all interest income received; therefore, no Schedule M-1 entry is required. Use the
Type of tax return
field in the CAGen screen to indicate the type of tax return being filed.All U.S. interest, dividends, and tax-exempt interest is reported on Form 100S, Side 1, Interest on government obligations.
For corporations subject to income tax (instead of the franchise tax), interest and dividends received on obligations of the federal government and on obligations of the state of California and its political subdivisions is exempt from income tax. Use the Type Code column to indicate the source of tax-exempt interest. In-state interest, along with U.S. interest, is deducted on Form 100S, Side 2, Other deductions. Enter a code directly or select one from the drop-down list.
The application also uses this statement to complete Schedule K and K-1, Tax-exempt interest income line. Enter any California adjustment amount for each line in the statement.
Book information: Depreciation - other than cost of goods sold / cost of goods sold
These fields contain the book depreciation amounts. The application uses these fields to generate a Schedule M-1 reconciling item, which is the difference between the book depreciation amount and the amount of total state tax depreciation.
The first book depreciation field displays the amount of book depreciation entered in the asset module. If you want the application to use an amount for book depreciation that is different than the displayed amount, enter an amount (or zero) in the second book depreciation field. If both book fields are blank on either line or if book equals state tax, the application does not generate a Schedule M-1 depreciation adjustment.
note
If a force amount is entered on the corresponding field in the federal Ms screen, then a force amount should also be entered here.
Book information: Section 179 expense
These fields contain book Section 179 expense amounts. The application uses these fields to generate a Schedule M-1 reconciling item, which is the difference between the amount of book Section 179 expense and the amount of state tax Section 179 expense.
The first
Section 179 expense - book
field displays the amount of book Section 179 expense entered in the asset module. To have the application use an amount for book Section 179 expense that is different than the displayed amount, enter an amount (or zero) in the second Section 179 expense - book
field.If the application determines that book Section 179 expense is zero, it generates a Schedule M-1 adjustment if there is a Section 179 tax amount. Note that the application determines the Section 179 tax amount from the data entered in the CADepr screen.
If your client’s depreciation data is maintained on a tax basis, enter the Section 179 book expense in the
Force / Zero
field to prevent the application from generating a Schedule M-1 adjustment. If your client’s depreciation data is maintained in accordance with GAAP, leave the Force / Zero
field blank. The application generates a Schedule M-1 adjustment.Book information: Amortization
These fields contain the book amortization amounts. The application uses these fields to generate a Schedule M-1 reconciling item, which is the difference between the book amortization amount and the amount of total state tax amortization.
The first book amortization field displays the amount of book amortization entered in the asset module. If you want the application to use an amount for book amortization that is different than the displayed amount, enter an amount (or zero) in the second book amortization field. If both book fields are blank or if book equals state tax amortization, the application does not generate a Schedule M-1 amortization adjustment.
note
If a force amount is entered on the corresponding field in the federal Ms screen, then a force amount should also be entered here.
Book information: Organization or start-up expense deduction
These fields contain the book organization or start-up expense deduction amounts. The application uses these fields to generate a Schedule M-1 reconciling item, which is the difference between the book organization or start-up expense amount and the amount of total state tax organization or start-up expense.
The first book organization or start-up expense field displays the amount of book organization or start-up expense entered in the asset module. If you want the application to use an amount for book organization or start-up expense that is different than the displayed amount, enter an amount (or zero) in the second book organization or start-up expense field. If both book fields are blank or if book equals state tax, the application does not generate a Schedule M-1 organization or start-up expense adjustment.
note
If a force amount is entered on the corresponding field in the federal Ms screen, then a force amount should also be entered here.
Book information: Schedule D-1 gain (loss)
These fields contain the book Schedule D-1 gain or loss amounts. The application uses these fields to generate a Schedule M-1 reconciling item, which is the difference between the amount of book Schedule D-1 gain or loss and the state tax Schedule D-1 gain or loss calculated by the application. Therefore, even if the client’s books are kept on a tax basis, the application generates a Schedule M-1 reconciling amount for the entire gain or loss for assets with a Section 179 expense deduction. This is because when books are kept on a tax basis, the gain or loss from assets with a Section 179 expense deduction is reflected in book income, but not in the amount for Schedule K.
The first
Schedule D-1 gain or loss
- book
field displays the amount of book Schedule D-1 gain or loss entered in the asset module. If you want the application to use an amount for book Schedule D-1 gain or loss that is different than the displayed amount, enter an amount (or zero) in the second Schedule D-1 gain or loss - book
field. If both Schedule D-1 gain or loss - book
fields are blank or if book Schedule D-1 gain / loss equals state tax Schedule D-1 gain or loss, the application does not generate a Schedule M-1 gain or loss adjustment.note
If a force amount is entered on the corresponding field in the federal Ms screen, then a force amount should also be entered here.
Carry book / tax difference to Schedule M-2
Enter an appropriate code to transfer the book / tax difference for depreciation, amortization, organization or start-up expense deduction, depletion, rounding adjustment, and Schedule D-1 gain or loss to Schedule M-2.
- If the book amount is greater than the tax amount, the application transfers the difference to Schedule M-2, Other reductions.
- If the tax amount is greater than the book amount, the application transfers the difference to Schedule M-2, Other additions.
If this field is blank, the program first looks to the field Carry Schedule M-1 book/tax differences to Schedule M-2 (S Corp) in Setup, 1120 Corporation, Federal, Other Return Options and uses that option.
If that field is also blank, the book / tax difference does not transfer to Schedule M-2. The available codes and their destinations are in the dropdown list and in the following table:
Sch M-2 Code | Description | Destination |
|---|---|---|
D | Do not transfer to Sch M-2 | N/A |
A | Accumulated adjustments account | Schedule M-2, Other additions or Other reductions |
O | Other adjustments account | Schedule M-2, Other additions or Other reductions |
R | Retained earnings unappropriated | Schedule M-2, Other additions or Other reductions |
T | Timing differences | Schedule M-2, Reconciliation Worksheet, Other additions or Other reductions |
Maximum amount for Schedule M-1 rounding
Enter an out-of-balance threshold in this field. The application performs an out-of-balance adjustment up to the amount specified. The application does not perform an adjustment if the difference between the net income for state purposes on Side 2 and Schedule M-1 is out of balance by more than the amount in this field.
If you do not want the application to make an automatic adjustment, enter
0
(zero) or leave this field blank. Schedule M-2 - Analysis of Accumulated and Other Adjustments
he application transfers the following items to Schedule M-2.
- Schedule K income and expense items
- Schedule M-1 50 percent of meals and entertainment
- Schedule M-1 tax-exempt interest income
- Items coded in Schedule M-1 for Schedule M-2
All of these items except tax-exempt interest income are transferred to
Accumulated Adjustments Account
AAA) Other additions
or AAA
Other reductions
fields, as appropriate. The application transfers tax-exempt interest income to the Other Adjustments Account (
OAA)
column on Schedule M-2.note
The
Timing Differences
column is used in reconciling the year-end Schedule M-2 balances with the total retained earnings on the Schedule L balance sheet. If reconciling the Schedule M-2 on a book basis, you probably do not use this column for Schedule M-2 reconciliation. If reconciling the Schedule M-2 on a tax basis, this column is helpful in tracking book / tax timing differences and C Corporation retained earnings.Balance at beginning of year
Enter balances as of the beginning of the tax year in each of the following four columns, as applicable.
- Accumulated Adjustments Account
- Other Adjustments Account
- Other Retained Earnings
- Timing Differences
The application transfers the Schedule M-2 end-of-year balances from the prior year to these fields for proforma’d clients.
Other additions - Accumulated Adjustments Account
The application transfers the amount in the
AAA Other additions
field in the federal Ms screen to the statement attached to this field in the Accumulated Adjustments Account
column, and it transfers amounts from Form 100S Schedule K to this statement. Use this statement as necessary to add any additional amounts. Include them in the Accumulated Adjustments Account
, Other Adjustments Account
, and Timing Differences
columns, as applicable.The application transfers the following from Form 100S Schedule K to Schedule M-2, AAA Other Additions.
- Net real estate income
- Other net rental income
- Interest income
- Dividend income
- Royalties (if positive)
- Net short-term capital gains
- Net long-term capital gains
- Other portfolio income
- Net Section 1231 gains
- Other income
- Federal-California ordinary income depreciation and amortization difference (if federal depreciation is greater than California depreciation)
- Schedule M-1 items coded for Schedule M-2 AAA
Other reductions - Accumulated Adjustments Account
The application transfers the amount in the
AAA Other reductions
field in the federal Ms screen to the statement attached to this field in the Accumulated Adjustments Account
column, and it transfers amounts from Form 100S to this statement.The application also transfers disallowed entertainment expense and foreign taxes from the federal return. Use the statement attached to this field as needed to add any reduction amounts. Include them in the
Accumulated Adjustments Account
, Other Adjustments Account
, and Timing Differences
columns, as applicable.The application transfers the following to the
Other reductions
field in the Accumulated Adjustments Account
column from Side 2 or Schedule K.- Net real estate loss
- Other net rental loss
- Royalties (if negative)
- Net short-term capital losses
- Net long-term capital losses
- Other portfolio loss
- Net Section 1231 loss
- Other loss
- Federal-California ordinary income depreciation and amortization difference (if federal depreciation is greater than California depreciation)
- Charitable contributions
- Section 179 deduction
- Deduction related to portfolio income
- Other deductions
- Interest expense on investment debts
- Total Section 59(e)(2) expenditures
- California research credit
- Conservation expense
- Schedule M-1 items coded for Schedule M-2 AAA
Distributions (Force)
The amounts entered in these fields are used for Schedule M-2, Distributions other than dividend distributions, and the columns are completed as follows:
- If an amount is entered in theDistributions (Force)field in theAccumulated Adjustments Accountcolumn only, and theAllow distributions to reduce AAA below zerofield in the federal Ms screen is not marked, then the application applies the distribution against account balances in the following order: Accumulated Adjustments Account (AAA), Other Retained Earnings (ORE), and Other Adjustments Account (OAA). Any distribution made in excess of the AAA, ORE and OAA account balance is reflected as a timing difference on the CA Retained Earnings Reconciliation Worksheet.
- If a distribution amount is entered in theDistributions (Force)field in addition to theAccumulated Adjustments Accountcolumn, he application does not apply the distribution. Instead, it uses the amounts entered as force fields. To enable the application to allow distributions to reduce AAA below zero, enterXin theAllow distributions to reduce AAA below zerofield in the federal Ms screen.
- If the threeDistributions (Force)fields are blank, the application applies the total distribution amount from the federal return against the California balance in AAA, then ORE, and then OAA. If the distribution exceeds AAA, ORE, and OAA balances, the excess is reflected on the CA Form 100S Retained Earnings Reconciliation Worksheet as a timing difference.
Other additions - Other Adjustments Account
The application transfers the following to the
Other additions
field in the Other Adjustments Account
column from the federal Ms screen.- Tax-exempt interest transfers from the federal return to the Other additions line of Schedule M-2, column b for income tax filers only. Franchise tax filers are subject to tax on all interest income received; therefore, no Schedule M-2 entry is required. Use theType of tax returnfield in the CAGen screen to indicate the type of tax return being filed.
- Schedule M-1 items coded for Schedule M-2 OAA
- Cash surrender value - officer life
Other reductions - Other Adjustments Account
The application transfers to this field Schedule M-1 items coded for Schedule M-2 OAA from the
Book expenses not deducted
field in the Schedule M-1 Reconciliation of Income (Loss) section of this input screen.The application transfers the following to the
Other reductions
field in the Other Adjustments Account
column from the federal Ms screen. - Officer life insurance premiums