What Is M1 Next to My Tax Code?
If you’ve come across “M1” next to your tax code or on a business tax return, it’s referring to IRS Schedule M-1. This schedule is part of Form 1120 (for C corporations) and Form 1065 (for partnerships), and it plays a key role in reconciling a business’s financial accounting income (book income) with its taxable income.
What Is Schedule M-1?
Schedule M-1 explains the differences between income reported on financial statements and income reported to the IRS. Businesses often follow Generally Accepted Accounting Principles (GAAP) for financial reporting, while tax filings must follow IRS rules, which can treat certain items differently. The result is that book income and taxable income may not match—Schedule M-1 bridges that gap.
Why You’re Seeing “M1”
If “M1” appears next to your tax code, it usually means that Schedule M-1 was required and included in your tax return. This is standard for entities that meet either of the following conditions:
- Total assets of $250,000 or more at year-end
- Gross receipts above IRS thresholds
The presence of M1 does not indicate an error or issue—it simply shows that your return included the required reconciliation.
Example of How Schedule M-1 Works
Here’s a simplified example:
- Book income: $100,000
- Add: $10,000 in non-deductible expenses (e.g., entertainment)
- Subtract: $5,000 in tax-exempt income (e.g., municipal bond interest)
- Resulting taxable income: $105,000
These differences are itemized on Schedule M-1 and flow into the final tax return.
How It Connects to Other Schedules
Schedule M-1 works alongside:
- Schedule L – reports the company’s balance sheet
- Schedule M-2 – tracks retained earnings or partners’ capital accounts
Together, they provide the IRS with a full financial picture of your business.
Conclusion
Seeing “M1” next to your tax code means a reconciliation between book and taxable income was part of your return. This is common—and required—for many corporations and partnerships. If you’re unsure about how it applies to your business, reach out to us today. Our dedicated team at Dimov Tax is ready to establish full compliance.