Income reconciliation shows zero book/tax difference but TurboTax keeps saying its out of balance

[jon5]

Income reconciliation shows zero book/tax difference but TurboTax keeps saying its out of balance. I keep running through the "edit" process and confirming all the numbers and still says its out of balance.

[HopeS · Accepted solution]

It appears you are missing a book/tax difference adjustment on the M-1 Schedule. The purpose of 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. When you have non-deductible expenses like 50% of meals it creates a permanent book- tax difference.   Below is a list of common book-tax differences found on Schedule M-1. 

Examples of Expenses on books, not included on tax returns:

1. Book depreciation in excess of tax depreciation
2. 50% of travel/meals and entertainment not deductible 
3. Fines and penalties
4. Political contributions
5. Officer's life insurance premium, etc.

Review your M-1 worksheet as shown on the screenshot below, and enter your book/tax differences as applicable.

Book/Tax Difference

@jon5 

[MarkNabm]

I have a similar problem, which could be resolved by using the M-1 adjustment, but I question if doing so is the best way to solve the problem.  I am using turbo tax for business and preparing a form 1120 return as a C – corp.  This is my first year to use turbo tax for business, so I have manually entered in the Beginning balances requested.  For the form 1125-A,  I provided accurate Beginning Inventory ($1489) and Ending Inventory ($10,698) balances which reflect an increase in inventory of $9202 from beginning of year to end of year.  When reconciling Book Income/loss against my Balance sheet and Retained earnings the numbers are in Balance.  However for Income reconciliation the Book income/loss (in this case a loss of -$82107) is off from the Turbo income loss (-$72898).  That difference in the Book versus Turbo is $9202, which is exactly the same value of the Increase in inventory beg balance and ending balance ($9202).  I can’t figure out why.  The COGS 1125-A seems to be filled on correctly, and if I compare the Form 1120 year to year Balance Sheet in Schedule L return, everything balances and represents my Books accurately.   Your thoughts?

[LenaH]

If you are still getting an error, it would be helpful to have a TurboTax ".tax2023" file that is experiencing this issue.

You can send us a “diagnostic” file that has your “numbers” but not your personal information. If you would like to do this, here are the instructions: 

1. On your menu bar at the very top, click "Online"
2. Select "Send Tax File to Agent"
3. Click "Send"
4. The pop-up will have a token number
5. Reply to this thread with your Token number. This will allow us to open a copy of your return without seeing any personal information. 

We will then be able to see exactly what you are seeing and we can determine what exactly is going on in your return and provide you with a resolution.

@MarkNabm 

[MarkNabm]

I sent in the diagnostic return as instructed below, but never heard back.

Not hearing back I tried to reply to the email in which you provided the Token number and instructions to send the diagnostic return.

My Token number is 1252271.  I am still hoping for a response and solution.

Thanks, 

@MarkNabm