Any other additional Other Increases/ Decreases may still be entered directly on Schedule M-2 and all amounts are included on the line 4 and line 7 supporting statements and on the Schedule K-1, Item L, “Other increase (decrease)” required attachment.Īdditionally, the following capital account reconciliation’s have been update to reflect the above changes removing the books to tax reconciliation and providing more detail on the partner’s share of taxable income and other increases/decreases. Those include: Other Increases (Schedule M-2, line 4)Īll automatically computed amounts have corresponding override inputs in the Schedule M-2 screen and those overrides are also available in the Special Allocations screen.

Some “other increases / other decreases” will be automatically made to Schedule M-2, lines 4 and 7. Schedule M-1, line 9 “Taxable Income (loss)”, instead of Schedule M-1, line 1 “Net income (loss) per books”, will always flow to Schedule M-2, line 3 and the related partner amounts to Schedule K-1, Item L. The optional feature added in 2020 to recompute Schedule M-2, line 3 “Net income (loss) per books” if the partnership books are NOT on a tax basis has been removed from tax year 2021 onward.

Schedule M-2, line 3 will flow from Schedule M-1, line 9 “Income (loss) (Analysis of Net Income (Loss), line 1).” To learn more, refer to the Form 1065 Instructions. Starting with tax year 2021 returns, the IRS updated the 1065 Instructions with guidance on Schedule M-2 / Schedule K-1 (Item L) reporting.

1065 partnership tax return example