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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
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Experience:  10 years experience
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Last year corporate taxes owed paid in current year: Do I

Customer Question

last year corporate taxes owed paid in current year:
Do I report them as an expense? or
Do I report it in schedule M-1Same with Federal Taxes
Submitted: 8 months ago.
Category: Tax
Expert:  Lane replied 8 months ago.

Taxes affect cashflow and would affect the balance sheet if paid with corporate funds. But are not expenses for tax purposes.

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Only OTHER taxes paid (property tax, etc) are deductible for TAX purposes.

Customer: replied 8 months ago.
Is not enough
In order for me to balance my books I have to report these (last year ) taxes somewhere.
do you mean, is not an expense but should be reported in schedule M-1?
Expert:  Lane replied 8 months ago.

Yes

Expert:  Lane replied 8 months ago.

If you used corporate funds as would be expected you MUST make a balance sheet entry.

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M-1, as a part of Form 1120, reconciles book income to taxable income. This reconciliation, along with the balance sheet and analysis of unappropriated surplus (Schedule M-2) must be completed if total business assets exceed $25,000 (even on a Schedule 1120-A).

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  • The starting point is book income before book tax liability
  • The book tax liability is added back (because this is not deductible for tax)
  • Next, capital losses deducted on the books are added back, since these are not deductible for tax purposes
  • The next section is for additions, which can be either (1) income subject to tax but not reflected on the books (e.g., certain advance payments) or (2) expenses deducted on the books but not allowed for tax purposes (e.g., contributions exceeding the 10% limit, 50% of meals and entertainment, etc.).
  • The next section (lines 7 and 8) report reductions in reconciling book income with taxable income. These can be either (1) income on the books that is not subject to tax (e.g., tax-exempt interest) or (2) deductions on the return not reflected on the books (e.g., excess tax depreciation, contributions carried over from prior year)
  • After adjustments, the final income number on line 10 should agree with taxable income before special adjustments on line 28 of the Form 1120

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Expert:  Lane replied 8 months ago.

Hope that helps to clarify