I am having some serious issues with getting questions on M-1 reconciliation book to tax correct.

I think my main problem that I'm having is knowing whether to add or subtract items from book income to get to tax. 

How is everyone studying this to get the questions correct?  Are you memorizing the M-1 itself to see if you should add or subtract?  Or are you using logic to get to taxable income?

Any help would be appreciated.  I am getting really confused. 

The way i understand M-1 is this:First, i think if a deduction is allowed for book and tax. If it's an allowable deduction on both, there's no adjustment needed.

Here is an example:

                                      Book                                        Tax

Fed. Income tax exp:     Deducted        &nbs p;         &nbs p;     Non-deductible

Capital losses                 Deducted        &nbs p;         &nbs p;     Non-deductible

State franchise tax        Deducted        &nbs p;         &nbs p;     Deductible

So; since it was taken out from the book income and it shouldn't be taken out from the tax income; you have to add it back in.

Since state taxes are tax dedutible, and it's already deducted under the book income; there's no need to deduct again. No adjustment needed.

Anyone please correct me if i'm wrong. I have my exam soon too.

Thanks.

Thanks Lolly... how about income or expense items??  how do you know when to add or subtract them from book income to get to taxable income? 

Federal income tax and capital losses I understand you need to add them back b/c they shouldn't be taken out of taxable income.  Its the more complicated ones that are getting me stuck.  I just can't seem to grasp this.

I'm so frustrated with the Corporate tax material!!! 

                                                 Book    &n bsp;         &n bsp;   Tax

Life Ins Proceed          ;           ; Taxable          ;     Not taxable

Int from life proceed          ;     taxable          ;      Not taxable

Since these are not taxable; and it was added into book, you have to subract them out.

Expenses: use the same concept

Hope this helps!