Schedules L, M-1, and M-2 calculations

According to the IRS 2020 Form 1065 instructions, Schedule M-1 uses book basis. Schedules M-2 and K-1 now use tax basis.
When you use Schedule M-1 with M-2, the calculation for M-2 line 3 uses:
  • Form 1065, page 6, line 1
  • The manual adjustments for M-1 from the M1M2 screen in the Balance Sheet input folder.
The following automatic adjustments are considered permanent:
  • Tax-exempt interest
  • Meals and entertainment
  • Lease inclusion
  • Rent personal expenses
  • Tax credit adjustments
  • Conservation expenses
When you use Schedule M-3 with M-2, the calculation for M-2 line 3 uses:
  • Form 1065, page 6, line 1.
  • The Manual adjustments for M-3 from the M3-2 screen in the Balance Sheet input folder.
The following automatic adjustments are considered permanent:
  • Tax-exempt interest
  • Meals and entertainment
  • Lease inclusion
  • Rent personal expenses
  • Tax credit adjustments
  • Conservation expenses
If the calculated amount on Schedule M-2 line 3 should be different, go to the
Balance Sheet input
folder and open the
M1M2
window. Then use the
Net income per books (Force)
field to enter the information.
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