topic Error: Schedule M-1 Items Worksheet: Book-TxExmpt In-OutState in Business & farm

Error: Schedule M-1 Items Worksheet: Book-TxExmpt In-OutState

TaxGuru1 — Mon, 09 Mar 2026 04:16:42 GMT

I am getting below error for filing my S-Corp Business Tax Return:

Error: Schedule M-1 Items Worksheet: Book-TxExmpt In-OutState If you want to use the Scheduled M-1 worksheet, please delete entries made on Schedule K, Line 16b and/or the Smart Worksheet above it and re-enter tax-exempt income items on the Schedule M-1 worksheet instead.

I don't have anything to enter for Book-TxExmpt In-OutState, and it should not be giving me this error. I tried to manually overwrite Schedule K, Line 16b (which was auto filled by TurboTax), yet I am getting the same error. So, I put the value back in Schedule K, Line 16b.

Please help.

Thank you

Re: Error: Schedule M-1 Items Worksheet: Book-TxExmpt In-OutState

AliciaP1 — Tue, 01 Feb 2022 04:14:06 GMT

If you are correctly reporting amounts from forgiveness of a PPP loan to your business you will have information on line 16b. There must also be an accidental entry for tax-exempt interest income under Investment Income.

To check this amount please:

Under the Federal Taxes tab in TurboTax Business, click Update next to Interest and dividend income under "Investment Income".
Click Continue past the Enter Taxable Interest Income page.
Click Continue past the U.S. Obligation Interest income page,
Clear any amounts that may be in the boxes on the Tax-Exempt Interest page and click Continue.

If there are amounts that are supposed to be under Tax-Exempt Interest as they were reported to the business, then you will need to choose to "complete my balance sheet" under the balance sheet section.

Re: Error: Schedule M-1 Items Worksheet: Book-TxExmpt In-OutState

TaxGuru1 — Sat, 05 Feb 2022 17:37:47 GMT

I followed these steps as well as redo everything again several times, yet I get the same error. There is definitely something wrong with the product. It is not letting me E-File before clearing this error.

Please help me!

Thank you!

Re: Error: Schedule M-1 Items Worksheet: Book-TxExmpt In-OutState

graygeotech — Sun, 06 Feb 2022 22:41:02 GMT

We are having exactly the same problem, and can't complete the e-file because of it.

- We have reported our PPP loan which is shown on line 16b

- We have no Tax-Exempt Interest or any other investment income to report, and I have checked that these boxes do not have an entry.

- This is our final return and the balance sheet is zero, so thought we don't need to file Schedule M-1? Previous years assets have been under $250,000.

Re: Error: Schedule M-1 Items Worksheet: Book-TxExmpt In-OutState

PatriciaV — Mon, 07 Feb 2022 16:51:19 GMT

@graygeotech
Try entering zero for Tax-Exempt interest - in state under Direct Entry on the Schedule M-1 Items Worksheet (Forms Mode). This may resolve the e-filing issue you are experiencing - run Federal Review Error Check to be sure.

Re: Error: Schedule M-1 Items Worksheet: Book-TxExmpt In-OutState

Peppelarson — Tue, 08 Feb 2022 04:21:44 GMT

We're having the same problem. Setting the amounts to zero does nothing, as the error message repeats.

In theory we're supposed to add PPP forgiveness amounts here, but even when we do we continually get errors.

Re: Error: Schedule M-1 Items Worksheet: Book-TxExmpt In-OutState

DM007 — Tue, 08 Feb 2022 06:54:21 GMT

I use TurboTax Business desktop edition for my S Corp and I'm coming across the exact issue. Did anyone find a solution?

Re: Error: Schedule M-1 Items Worksheet: Book-TxExmpt In-OutState

TaxGuru1 — Tue, 08 Feb 2022 14:15:23 GMT

Hi AliciaP1 (Expert),

We don't have any amount of for interest or dividend earned and so have left all these sections blank.

We have reported PPP loan which is showing on the Schedule K-1: line 16b.

I have tried to manually clear these values, enter 0 in them and almost every possible way I could, but the TurboTax Business Desktop software doesn't not let me move pass this issue. It won't let me e-file nor allows me to print and mail option, as suggested by the support.

Please help ASAP.

Thank you,

-----

Under the Federal Taxes tab in TurboTax Business, click Update next to Interest and dividend income under "Investment Income".
Click Continue past the Enter Taxable Interest Income page.
Click Continue past the U.S. Obligation Interest income page,
Clear any amounts that may be in the boxes on the Tax-Exempt Interest page and click Continue.

Re: Error: Schedule M-1 Items Worksheet: Book-TxExmpt In-OutState

TaxGuru1 — Tue, 08 Feb 2022 18:49:22 GMT

PPP Loan Forgiven amount is "Nontaxable income". However, while importing from QuickBooks, TurboTax Business questions this amount with a drop-down menu with the most logical option to select "Other Income". However, TurboTax adds this amount to Net Income and makes you pay taxes on this.

How can we have TurboTax correct this QuickBooks import as "Nontaxable income" and fill in Schedule M-1 with adjusted Line 1 and Line 5 (w/ PPP Loan Forgiven amount)? And NOT put it in 1120S Line 5 on total other income?

Re: Error: Schedule M-1 Items Worksheet: Book-TxExmpt In-OutState

Peppelarson — Tue, 08 Feb 2022 21:12:32 GMT

Here's the workaround we tried that worked

Go to the Step-by-step section where TT asks about if you received PPP forgiveness, and answer 'no'
Go to the forms section, open the PPP form and then add the forgiven amount in there.
Add the PPP amount on the M-1 form (we added it under 'other permanent income items')
We then verified that the amount was listed on the K-1(s) in line 16b
Run the federal error check to make sure it works

I don't recall if we did step 2 before 3, or step 3 before 2. If it doesn't work in the order listed above, swap 2 and 3 and try again.

Re: Error: Schedule M-1 Items Worksheet: Book-TxExmpt In-OutState

polignani — Wed, 16 Feb 2022 00:29:22 GMT

This (suggestion by TTax expert) didn't work. The manual deletion suggested by Peppelarson below did work.. This is a bug in the program. Please have it fixed.

Re: Error: Schedule M-1 Items Worksheet: Book-TxExmpt In-OutState

tberry668 — Fri, 18 Feb 2022 19:08:48 GMT

Having this exact same issue. Peppelarson's solution worked. Thank you!

Re: Error: Schedule M-1 Items Worksheet: Book-TxExmpt In-OutState

iqtech — Fri, 18 Feb 2022 20:30:57 GMT

Thanks, this method worked for me. You have to click a QuickZoom link to the PPP form from line 16b on the 1120S pages 3-5 form.

Re: Error: Schedule M-1 Items Worksheet: Book-TxExmpt In-OutState

jamiewatson12 — Tue, 01 Mar 2022 17:10:47 GMT

This workaround worked for me. TT needs to get their house in order. Do they not beta test this before it goes live???

Re: Error: Schedule M-1 Items Worksheet: Book-TxExmpt In-OutState

bgclonts — Wed, 02 Mar 2022 00:45:16 GMT

I am having the same error. I can't e-file because of this error. I have done it several time.

Re: Error: Schedule M-1 Items Worksheet: Book-TxExmpt In-OutState

PatriciaV — Wed, 02 Mar 2022 15:28:28 GMT

@bgclonts

Please clarify what you have done several times. Have you tried the work-around given above by Peppelarson?

Re: Error: Schedule M-1 Items Worksheet: Book-TxExmpt In-OutState

braynex — Wed, 02 Mar 2022 22:43:01 GMT

I also experienced this error in my 1120-S return and followed the recommendation from TurboTax - it did not work. I then followed Peppelarson's solution which worked perfectly.

Hopefully TurboTax will implement a correction for this error soon.

Re: Error: Schedule M-1 Items Worksheet: Book-TxExmpt In-OutState

pflipper — Sun, 06 Mar 2022 20:01:12 GMT

Had to comb through this / redo the PPP form SIX OR SEVEN TIMES before I finally got this error to disappear. For a big company that takes > $120 for this software every year, that's POOR development, error fixing, testing. Fix your issues, Intuit. Wear your big-company pants.

Re: Error: Schedule M-1 Items Worksheet: Book-TxExmpt In-OutState

ADSMiguel — Tue, 08 Mar 2022 15:55:35 GMT

Hello! I tried the suggested path by @Peppelarson switching between steps 2 and 3 and both times work with no error. However the forgiveness amount does not show up on schedule k-1 under line 16b. It doesn't show up at all not sure how to fix this?

Re: Error: Schedule M-1 Items Worksheet: Book-TxExmpt In-OutState

PatriciaV — Tue, 08 Mar 2022 16:32:29 GMT

@ADSMiguel

Please clarify what entries you made on Schedule M-1 Items Worksheet (Sch M-1 Wks) and if the PPP Loan Statement was generated.