In practice, the first step in preparing a corporate income tax return is to analyze the Income Statement and determine what items need to be adjusted for tax purposes. The preparer may create a summary of these differences for the file to support the Form 1120 that he or she prepares. The differences are reported on the Form 1120 Schedule M-1 or Form 1120 Schedule M-3 depending on the size of the company.
Part 1
Deliverable Length: 800–1,000 words
Use the following Web site to download the Form 1120 and Form 1120 (Schedule M-3) along with the instructions:
Prepare a memo to the file that explains the following:
- What is the Schedule M-1 and what is its purpose?
- How is the information reported on the Schedule M-1? (Describe the components.)
- Describe 2 book or tax differences that may be reported on the Schedule M-1.
- When is the Schedule M-1 to be prepared?
- Who must file a Schedule M-3? How is it filed?
- What is the purpose of the Schedule M-3?
- How is the information reported on the Schedule M-3? (Describe the sections or components.)
- Describe how the Schedule M-3 differs from the Schedule M-1.
- What are temporary differences and permanent differences?
Part 2
Deliverable Length: Completed Form 1120 (Schedule M-1)
Go to the IRS Forms and Publications Web site to download the Form 1120 (Schedule M-1). Prepare the Schedule M-1 using the taxable income that you calculated in the Week 2 Individual Project.
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