For an 1120, 1120S, or 1065 client, you can create tax adjusting entries directly to a tax code from the Actions > Enter Tax Code Adjustments screen. You can also use this screen to enter tax reconciliation information - to record and reconcile differences between adjusted net income amounts and tax net income amounts.
Choose Actions > Enter Tax Code Adjustments. (A consolidation client is not available for selection from this screen.)
The schedule lines in the Summary tab of the Enter Tax Code Adjustments screen vary based on the entity type (1120, 1120S, or 1065) selected for the client in the Setup > Clients > Accounting Information tab.
Notes
- When you record and post tax adjustments in this screen, the application creates adjusting journal entries by tax code, which create tax balances that can be exported to a tax application such as UltraTax CS.
- Before you can make entries in the Enter Tax Code Adjustments screen, all revenue and expense accounts should be assigned an income statement tax code. The application then increases or decreases these income statement tax codes and offsets them to an or tax code in the tax adjustment to account for book-to-tax differences in net income.
Certain corporations and partnerships can use Schedule M-1 to reconcile financial accounting net income and taxable income. Affected corporations and partnerships have assets less than $10,000,000 and file Form 1120, 1120-PC, 1120-L, 1120S, or 1065.
Use Schedule M-3 to record and reconcile differences between Net Income per Books (Adjusted Net Income) and Net Income per Tax Return (Tax Net Income).
Summary tab descriptions
The items in the Summary tab show Adjusted Net Income, total adjustments from the other tabs in the Enter Tax Code Adjustment screen, and data from the Other Adjustment tab. Items that appear in the Summary tab depend on which entity type is selected in the Setup > Clients > Accounting Information tab.
Note: The lines in the Summary tab for an 1120 client correspond to Form 1120, Schedule M-1. (Because line 6 on Schedule M-1 of Form 1120 is the sum of lines 1 through 5, it is not represented in this tab.)
Line 1. Net income (loss) per books. Equals the year-to-date adjusted net income for the year that the client is in.
Line 2. Federal income tax per books. Equals the sum total of the adjustments from tab 2-Federal income tax per books.
Line 3. Excess of capital losses over gains. Equals the sum total of the adjustments from tab 3-Excess of cap losses over gains.
Line 4. Income subject to tax not recorded on books this year (itemize). Equals the sum total of the adjustments from tab 4-Tax income not on books.
Line 5. Expenses recorded on books this year not deducted on this return (itemize). Equals the sum total of the adjustments from tab 5-Book expenses not on return.
Line 7. Income recorded on books this year not included on this return (itemize). Equals the sum total of the adjustments from tab 7-Book income not on return.
Line 8. Deductions on this return not charged against book income this year (itemize). Equals the sum total of the adjustments from tab 8-Tax deductions not on books.
Other adjustments made to Schedule M-1. Equals the sum of the net income effect for the Adjusting Journal Entries in the current period that are included in the tax balance definition. It could include the sum of any combination of the following Adjusting Journal Entry types: Tax Adjustment, Reclassifying, Potential and/or Other.
Line 10. Net income (loss) per Schedule M-1. Equals the net income (loss) per books, plus lines 2, 3, 4, 5, less lines 7 and 8, plus tax adjusting journal entries that are not included in the tax adjustment.
Note: The lines in the Summary tab for clients with the 1120S entity type correspond to Form 1120S, Schedule M-1. (Because line 4 on Schedule M-1 of Form 1120S is the sum of lines 1 through 3, it is not represented on this tab.)
Line 1. Net income (loss) per books. Equals the Year-to-date Adjusted Net Income for the year that the client is in.
Line 2. Federal income tax per books. Equals the sum total of the adjustments from tab 2-Income on Sch K, not on books.
Line 3. Excess of capital losses over capital gains. Equals the sum total of the adjustments from tab 3-Expenses on books, not Sch K.
Line 5. Income on books, not Sch K. Equals the sum total of the adjustments from tab 5-Income on books, not Sch K.
Line 6. Deductions on Sch K, not on books. Equals the sum total of the adjustments from tab 6-Deductions on Sch K, not on books.
Other adjustments made to Schedule M-1. Equals the sum of the net income effect for the Adjusting Journal Entries in the current period that are included in the tax balance definition. It could include the sum of any combination of the following Adjusting Journal Entry types: Tax Adjustment, Reclassifying, Potential and/or Other.
Line 8. Net income (loss) per Sch M-1. Equals the Net income (loss) per books, plus lines 2 and 3, less lines 5 and 6 and 8, plus Tax Adjusting Journal Entries that are not included in the tax adjustment.
Note: The lines in the Summary tab for clients with the 1065 entity type correspond to Form 1065, Schedule M-1. (Because line 5 on Schedule M-1 of Form 1065 is the sum of lines 1 through 4, it is not represented on this tab.)
Line 1. Net income (loss) per books. Equals the Year-to-date Adjusted Net Income for the year that the client is in.
Line 2. Income on Sch K, not on books. Equals the sum total of the adjustments from tab 2-Income on Sch K, not on books.
Line 3. Guaranteed payments. Equals the sum total of the adjustments from tab 3-Guaranteed pmts.
Line 4. Expenses on books, not Sch K. Equals the sum total of the adjustments from tab 4-Expenses on books, not Sch K.
Line 6. Income on books, not Sch K. Equals the total of the adjustments from tab 6-Income on books, not Sch K.
Line 7. Deductions on Sch K, not on books. Equals the sum total of the adjustments from tab 7-Deductions on Sch K, not on books.
Other adjustments made to Schedule M-1. Equals the sum of the net income effect for the Adjusting Journal Entries in the current period that are included in the tax balance definition. It could include the sum of any combination of the following Adjusting Journal Entry types: Tax Adjustment, Reclassifying, Potential and/or Other.
Line 9. Net income (loss) per Sch M-1. Equals the Net income (loss) per books, plus lines 2, 3, and 4 less lines 6 and 7, plus Tax Adjusting Journal Entries that are not included in the tax adjustment.
Enter or modify tax journal entry adjustment amounts that are posted to tax codes.
Note: Because these journal entries are included as tax adjustments, they affect the net income calculation. This includes the Net Income effect in the Actions > Enter Transactions screen and the year-to-date net income calculations that are displayed in the Actions > View Net Income/Loss dialog. (Tax code adjustments are only included in the balance type that includes tax journal entries.)
Fields & buttons
Enter a reference number of up to 16 alphanumeric characters.
Enter up to 120 alphanumeric characters to describe the tax item.
Enter up to 14 positive or negative numeric values. (For example, 999,999,999,999.99 and -999,999,999,999.99).
Select a Revenue or Expense tax code for the client's entity type available from the drop-down list that also includes the Memo tax code-88888.
For multiple-unit entities, select the unit to designate the input screen location when transferring data to your tax application. For example, if you are transferring utilities expenses for a farm to the UltraTax CS Farm input screen and the tax code for the first unit's utilities is 632 and the unit is 1, you would transfer the second unit's utilities with a tax code of 632 and unit of 2.
Select a Sch M-1/M-3 tax code from the drop-down list (which is applicable to the client's entity type). You can also select Memo tax code 99999.
The M-3 tax code assignment from the Chart of Accounts > Edit Schedule M-3 Tax Codes dialog provides the Schedule M-3 mapping.
- For a Trial Balance client, further Schedule M-3 code mapping is provided when Tax Adjustment type adjusting journal entries are entered and posted. You can flag the Tax Adjustment transactions as either permanent (default selection even if the adjustment does not affect a GL account coded with an M-3 tax code) or temporary.
- Tax Adjustment AJEs flagged as temporary are mapped to Schedule M-3, Column B.
- Tax Adjustment AJEs flagged as permanent are mapped to Schedule M-3, Column C.
To exclude the Adjusting Journal entry from tax exports, mark this checkbox.
Enter a workpaper reference of up to 25 alphanumeric characters to supply an audit trail and to represent where the journal entry originated. The workpaper reference will print on the Tax Reconciliation Worksheet (Detailed).
Notes
- Amount fields in the Summary tab cannot be edited, and any modifications to amounts must be made on the applicable detail tab.
- Rows can be deleted in the detail tabs of the Enter Tax Code Adjustments screen by selecting the row and clicking the Delete
button.
- When the client is closed to the next year for the first time, adjustments in the Enter Tax Code Adjustments screen are carried forward to the next year. Amounts for adjustments are set to zero when they are carried forward.
- An adjusting journal entry by tax code will not be created for adjustments made in the Enter Tax Code Adjustments screen without an income statement tax code or a Schedule M-1/M-3 Tax Code, plus an amount.
- Adjusting journal entries by tax code are included in the balances that are exported to a tax application by default. An entry can be marked as Exclude in cases where the tax application automatically creates the M-1/M-3 amount.
For example, because UltraTax CS automatically calculates the M-1/M-3 amount, the adjusting journal entry by tax code for Meals & Entertainment would be marked as Exclude in the detail tabs of the Enter Tax Code Adjustments screen. Therefore, where the amount is already calculated in the tax application, the effect of the entry is not exported, but the change in tax net income is accounted for in the trial balance.
Accounting CS
