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Old 10-25-2012, 01:03 AM
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M-2 and M-1

What is the difference between line 5(b) on M1 and line 8(b), also are dividends paid reported on the M2 as other increases or decreases?



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Old 10-25-2012, 09:04 PM
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“What is the difference between line 5(b) on M1 and line 8(b), “---->Schedule M-1 is a schedule found on Page 4 of the Corporate Form 1120 in which you are required to reconcile financial statement income (referred to as "book income") to taxable income shown on Page 1 of the Form 1120.The amount on 1120 line 5b on M1 is excess charitable contribution over the amount that can be deducted.As the amount that was deducted to arrive at income per books, but is not deductible for tax purposes, excess charitable contribution over the amount that can be deducted for tax purposes is reported on line 5b on M1.The amoun ton line 8b is the amount of charitable contribution that is deductible for tax purposes.For example, assume that your charitable contribution was $7K, and on your corp tax return on 1120, you deducted $7k of charitable contribution(subject to 10% of Corp taxable income), then you need to report the $7K on line 8b on M1. If the amount of charitable contribution was $8k(and you could deduct only $7K), then the remaining $1k(excess charitable contribution over the amount $7K, that could be deducted for tax purposes) is reported on line 5b as deferred tax asset for book purposes/ as deferred tax liability for tax purposes.



“also are dividends paid reported on the M2 as other increases or decreases?”-----> Correct. Sch M-2 of corporate tax return Form 1120 is used to reconcile a company's beginning unappropriated retained earnings to a company's ending unappropriated retained earnings for the tax year. The formula to calculate retained earnings is quite simple. The figure is calculated by adding the net profits (less dividends paid) to the beginning retained earning balance from a previous period:Retained Earnings (RE) = Beginning RE + Net Income – Dividends. So dividends paid decrease your ending r/e balance. So, when a company decides to pay dividends to its shareholders, the retained earnings will be reduced. Cash dividends, property dividends and stock dividends contribute to the reduction of a company’s retained earnings.If there is a net loss and it is larger than the beginning retained earnings, there will be what is called negative retained earnings.



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