The Tax Reconciliation feature in CSA enables you to create adjusting journal entries that directly adjust tax codes. These entries can be used to record and reconcile differences between Net Income per Books (Adjusted Net Income) and Net Income per Tax Return (Tax Net Income). The Tax Reconciliation window is available for clients with the entity type of 1120, 1120S or 1065 and is unavailable for consolidation clients. Because of the variance between 1120, 1120S, and 1065 entities in the tax return and related calculations for taxable net income, the Tax Reconciliation window is made up of separate tabs for each of these entity types.
Note: When tax adjustments are entered and posted in the Tax Reconciliation window, adjusting journal entries by tax code are created. These journal entries create tax balances that can be exported to a tax program.
Prior to making entries in the Tax Reconciliation window, all revenue and expense accounts should be assigned an income statement tax code. These income statement tax codes are then increased or decreased and offset to an M-1 or M-3 tax code in the tax reconciliation to account for book-to-tax differences in net income. See Tax Reconciliation entries (examples) for details.
Summary tab descriptions
The items on the Summary tab provide a summary of Adjusted Net Income, total adjustments from the other tabs in the Tax Reconciliation window, and other tax adjustments that are not included. Items that appear on the Summary tab depend on which entity type is selected on the Trial Balance tab or General Ledger tab of the New Client or Client Properties dialog.
Note: The lines on the Summary tab for clients with the 1120 entity type correspond to Form 1120, Schedule M-1. Because line 6 on Form 1120, Schedule M-1 is the sum of lines 1 through 5, 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-Federal income tax per books.
Line 3. Excess of cap losses over gains. Equals the sum total of the adjustments from tab 3-Excess of cap losses over gains.
Line 4. Tax income not on books. Equals the sum total of the adjustments from tab 4-Tax income not on books.
Line 5. Book expenses not on return. Equals the sum total of the adjustments from tab 5-Book expenses not on return.
Line 7. Book income not on return. Equals the sum total of the adjustments from tab 7-Book income not on return.
Line 8. Tax deductions not on books. Equals the sum total of the adjustments from tab 8-Tax deductions not on books.
Tax AJE's not included in Tax Rec. 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 but were not created in the tax reconciliation. 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 Sch 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 reconciliation.
Note: The lines on the Summary tab for clients with the 1120S entity type correspond to Form 1120S, Schedule M-1. Because line 4 on Form 1120, Schedule M-1 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. 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. Expenses on books, not Sch K. 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.
Tax AJE's not included in Tax Rec. 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 but were not created in the tax reconciliation. 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 reconciliation.
Note: The lines on the Summary tab for clients with the 1065 entity type correspond to Form 1065, Schedule M-1. Because line 5 on Form 1065, Schedule M-1 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.
Tax AJE's not included in Tax Rec. 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 but were not created in the tax reconciliation. 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 reconciliation.
Fields & buttons
Adjusting journal entries created in the Tax Reconciliation window are assigned a reference number of TAXREC. You can append up to 3 alphanumeric characters to the reference number. This number appears in the Reference column in the Adjusting Journal Entry window and Trial Balance window.
Enter up to 120 alphanumeric characters to describe the tax item.
You can 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.
Note: When an invalid tax code is entered in the Income Stmt Tax Code or M-1 M-3 Tax Code cells in the detail tabs of the Tax Reconciliation window, the affected cells are highlighted red.
Select a Sch M-1/M-3 tax code that is available for the client's entity type from the available drop-down list. Memo tax code 99999 may also be selected.
Note: When an invalid tax code is entered in the Income Stmt Tax Code or M-1 M-3 Tax Code cells in the detail tabs of the Tax Reconciliation window, the affected cells are highlighted red.
Schedule M-3 mapping is provided by the M-3 tax code assignment from the Chart of Accounts > Edit Schedule M-3 Tax Codes dialog.
- For a Trial Balance CS client, further Schedule M-3 code mapping is provided when Tax Adjustment type adjusting journal entries are entered and posted. The Tax Adjustment transactions can be flagged 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.
Mark this checkbox if you do not want to include the Adjusting Journal entry in any tax exports. Leave it unmarked to include it in tax exports.
Enter a workpaper reference of up to 10 alphanumeric characters to supply an audit trail and represent where the journal entry originated. The workpaper reference will print on the Tax Reconciliation report.
Click to move forward or backward through the tabs in the Reconciliation window.
Click to recalculate and post tax reconciliation adjusting journal entries to the applicable tax codes.
Notes
- Amount fields in the Summary tab cannot be edited, and any modifications to amounts must be made on the applicable detail tab.
- The Tax Reconciliation window is only available if the Trial Balance CS client is in the last period of the year and there are multiple processing periods available.
The Tax Reconciliation window is unavailable (grayed in the Tasks menu) if a Trial Balance CS client is in the current year, processing quarterly with a year end date of 12/31/07 and the GL period is 9/30/07. In this instance, the Tax Reconciliation window is available only when the client's GL period is 12/31/07.
The Tax Reconciliation window is unavailable (grayed in the Tasks menu) if a Trial Balance CS client is in the prior year, processing quarterly with a year end date of 12/31/07, the client is rolled back to 12/31/06 and the GL period is 9/30/06. The Tax Reconciliation window becomes available when the GL period for the client is moved to 12/31/06.
- Rows can be deleted in the detail tabs of the Tax Reconciliation window by highlighting the row and pressing the Delete key.
- Adjusting Journal entries that are created in the Tax Reconciliation window can only be edited or deleted there and not in the Trial Balance or Adjusting Journal Entrieswindows.
- Adjustments that are entered in the Tax Reconciliation window are carried forward to the next year when the client is closed to the next year for the first time. 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 Tax Reconciliation window without a Income Statement Tax Code, a Schedule M-1/M-3 Tax Code, or an amount.
- Adjusting journal entries by tax code are included in the balances that are exported to a tax program by default. An entry can be marked as Exclude in cases where the tax program 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 Tax Reconciliation window. Therefore, where the amount is already calculated in the tax program, the effect of the entry is not exported, but the change in tax net income is accounted for in Trial Balance CS.
- Adjusting journal entries that are posted to tax codes are not included in consolidation for consolidated clients.
Related topics
Tax Reconciliation entries (examples)
Adjusting journal entries by tax code (examples)
Adjusting Journal Entries [Tasks menu] > Detail version
Adjusting Journal Entries [Tasks menu]
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