I have a book/tax difference that I believe is related to non-deductible meals and entertainment. How can I reconcile on the return?

[jletts]

Can I file the return with a book/tax difference?  I believe it's related to the non-deductible meals.  My books show the entire amount spent, but the return is disallowing about $1800, resulting in an overage on net income of about $1200.  Or, should I amend my books?  I'm not really sure what to do here.

[DDollar · Accepted solution]

Yes you can file with a book - tax difference.  When you have non-deductible expenses like 50% of meals it creates a permanent book- tax difference.  If your business is filing as an S-Corp, the difference is shown on Schedule M-3 - Reconciliation of Income (Loss) per Books With Income (Loss) per Return.   If your business is filing a Form 1065, that is Schedule M-1.  The difference will carry forward and be your starting point for next year's reconciliation.

[jletts]

I'm using Turbo Tax and it's telling me Schedule M-1 is out of balance by -917.  Do I leave it as is or make the correction?  If it's the latter, I have no idea how to do that.  Suggestions?