How Drake Tax Calculates Schedule M-1
Drake calculates Schedule M-1 in reverse from the form itself. The taxable income on the last line comes from the return, and net income per books on line 1 is derived by working back up the schedule, so it is not an input. Schedule M-1 is required once gross receipts or total assets at year end exceed $250,000. Overrides for the depreciation difference live on the M1 screen.
- Data entry
- Screen M1
- Schedule M-1
| Trial balance account | Drake Tax screen and field | Lands on |
|---|---|---|
| Net income per books | Computed, not entered | Schedule M-1 line 1 |
| Book to tax depreciation | Computed from screen 4562. Override on screen M1 | M-1 line 3a (1120-S), 5a (1120), 4a (1065) |
| Second depreciation override | Screen M1 | M-1 line 6a (1120-S), 8a (1120), 7a (1065) |
| Schedule M-3 | Screen M33 | M-3 Part III line 24 (1120-S), 31 (1120), 25 (1065) |
| Form 8916-A | Screen 8916, or 916A on an 1120 | Form 8916-A line 2l |
| Taxable income starting point | From the return | Schedule K line 18 (1120-S), page 1 line 28 (1120) |
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Try it freeHow Drake Tax Calculates Schedule M-1 on a trial balance
| Acct # | Account | Debit | Credit |
|---|---|---|---|
| 1000 | Cash | 42,800.00 | |
| 1200 | Accounts receivable | 68,500.00 | |
| 1300 | Inventory | 55,000.00 | |
| 1500 | Equipment | 145,000.00 | |
| 1510 | Accumulated depreciation | 47,500.00 | |
| 2000 | Accounts payable | 28,400.00 | |
| 2100 | Accrued expenses | 9,200.00 | |
| 2400 | Notes payable | 92,000.00 | |
| 2450 | Due to shareholder | 15,000.00 | |
| 3000 | Common stock | 10,000.00 | |
| 3900 | Retained earnings | 86,300.00 | |
| 3950 | Shareholder distributions | 52,000.00 | |
| 4000 | Gross receipts | 612,000.00 | |
| 5000 | Cost of goods sold | 318,000.00 | |
| 6000 | Salaries and wages | 88,000.00 | |
| 6050 | Officer compensation | 72,000.00 | |
| 6300 | Depreciation expense (the account this page is about) | 21,500.00 | |
| 6900 | Other operating expenses | 37,600.00 | |
| Total | 900,400.00 | 900,400.00 |
Example journal entries
| Account | Debit | Credit |
|---|---|---|
| Depreciation expense | 21,500.00 | |
| Accumulated depreciation | 21,500.00 |
The calculation runs backwards
Drake's own description: the calculation for Schedule M-1 is done in reverse from the form itself. On an 1120-S the taxable income reported on M-1 line 8 comes from Schedule K line 18, and line 1, net income per books, is not available without book to tax adjusting entries.
The arithmetic Drake performs on an 1120-S is line 8, add line 6, add line 5, subtract line 3, subtract line 2. The result on line 1 should match the book income on the corporation's financial statements.
So there is no field for book income. If line 1 does not agree with the client's financial statements, the difference is real: something in the return disagrees with the books, and that is information rather than a presentation problem.
When the schedule is required
Schedule M-1 is required when gross receipts or total assets at the end of the year are greater than $250,000. Below that, Drake omits it, which is why a small client return prints without one.
Forcing it to print anyway is usually worth the few seconds, because M-1 and M-2 are where book to tax and equity errors become visible.
Where the overrides are
The program makes the book to tax depreciation adjustment from the other entries in the return, and the override locations differ by form:
- 1120-S: M-1 lines 3a and 6a, both on the M1 screen
- 1120: M-1 lines 5a and 8a, on the M1 screen
- 1065: M-1 lines 4a and 7a, on the M1 screen
Schedule M-3 overrides are on the M33 screen, and Form 8916-A line 2l is on the 8916 screen, or 916A in the 1120 package.
Field level help, F1, at each override location gives the specifics for your version.
What creates the differences
Depreciation, nearly always, because book lives and MACRS rarely agree. Then the recurring ones: the meals disallowance, officer life insurance where the company is the beneficiary, penalties, federal income tax on an 1120, and accrued compensation to an owner that is not deductible until paid.
Some income items flow to M-1 automatically. Certain credit forms require the credit amount to be included in other income, which is a tax item only and not part of book income, and Drake carries that to the M-1 line for income on the return not recorded on the books.
Tax return treatment
| Form | Line |
|---|---|
| Form 1120S | Schedule M-1, starting from Schedule K line 18 |
| Form 1120 | Schedule M-1, starting from page 1 line 28 |
| Form 1065 | Schedule M-1, with Analysis of Net Income |
Common questions
Why can I not enter net income per books in Drake?
Because Drake computes it. The M-1 calculation runs in reverse from the form: taxable income comes from the return and line 1 is derived by working back up the schedule. When the schedule is complete, line 1 should match the book income on the financial statements.
When is Schedule M-1 required?
When gross receipts or total assets at the end of the year exceed $250,000. Below that Drake does not produce it, which is why small client returns print without one. The PRNT screen can force it.
Where are the Schedule M-1 depreciation overrides?
On the M1 screen, at lines 3a and 6a for an 1120-S, 5a and 8a for an 1120, and 4a and 7a for a 1065. Schedule M-3 overrides are on the M33 screen and Form 8916-A line 2l is on the 8916 screen.
Why does my M-1 line 1 not match the client financial statements?
Because something in the return disagrees with the books. Since line 1 is derived rather than entered, a mismatch is a genuine difference to investigate, most often an adjustment made on the return that was never made on the books, or a book figure that never reached the return.
Related answers
Go deeper
This page is the short answer. These articles work through the same ground in detail.
Last reviewed October 18, 2026.