Partnership Accounting - Schedule M-1

Schedule M-1

Purpose of Schedule M-1

U.S. Return of Partnership Income (IRS Form 1065) contains, among others, Schedule M-1.

The purpose of Schedule M-1 is reconciliation of income (loss) per accounting books with income (loss) per Return of the partnership. In other words, it means reconciliation of accounting income with taxable income, because not all accounting income is taxable.

Schedule M-1 starts with Net income (loss) per books. Adjustments are made for guaranteed payments, as well as for depreciation and other expenses. As a result, accounting income of a partnership is adjusted, or reconciled, to taxable income.