Schedule M is an important form used by businesses in Illinois for income tax reporting. It is attached to various tax forms like IL-1120, IL-1120-ST, IL-1065, and IL-1041. This schedule is specifically used for detailing other additions and subtractions to income. It is essential for accurately reporting business income after adjustments for various tax credits, deductions, and income exclusions, such as capital gains, dividends, bonds, and state refunds. Understanding how to complete Schedule M is crucial for ensuring businesses pay the correct amount of tax and claim eligible deductions, especially when dealing with complex financial situations like the taxation of capital gains or municipal bonds.
How to File Schedule M
- Gather Necessary Documents: Before beginning to fill out Schedule M, ensure you have all relevant financial documents, including records of any income or deductions that may affect your federal taxable income.
- Obtain the Correct Forms: Schedule M must be attached to either Form IL-1120, IL-1120-ST, IL-1065, or IL-1041. Make sure you are using the version of the form that corresponds to your specific business structure.
- Complete Each Section Accurately: Schedule M has sections for both additions and subtractions to your income. Fill out each line with the correct figures from your records, ensuring that you do not skip any lines.
- File by the Deadline: The form must be filed along with your income tax return. Be sure to meet the filing deadline to avoid any penalties.
How to Complete Schedule M
Step 1: Provide Your Information
- Line 1: Enter your business name exactly as it appears on your tax return.
- Line 2: Enter your Federal Employer Identification Number (FEIN).
Step 2: Additions
- Line 1: Report any capital gains taxed under IRC Section 852(b)(3).
- Line 2: Include the amount of notes, bonds, debentures, or obligations issued by the governments of American Samoa, Guam, Puerto Rico, or the Virgin Islands.
- Line 3: Report any Lloyd’s plan of operation loss if included in your federal taxable income (Form IL-1065 filers).
- Line 4: Add business expense recapture amounts to your income.
- Line 5: If applicable, report any other state’s income tax deducted from federal taxable income (Form IL-1041 filers).
- Line 6: Include the capital loss to be carried forward (Form IL-1041 filers).
- Line 7: Include any Student-Assistance Contribution Credit taken on Schedule 1299-A or 1299-D.
- Line 8: Report dividends paid by a captive REIT.
- Line 9: Include any deductions allowed under IRC Section 250(a)(1)(A) (Form IL-1120 filers).
- Line 10: List any other additions that do not fit the above categories. Identify each item.
- Line 11: Add lines 1-10 and enter the total here. Transfer the total to the corresponding line of your tax form.
Step 3: Subtractions
- Line 12: Report exempt interest dividends paid by regulated investment companies (IRC Section 852(b)(5)).
- Line 13: Subtract notes, bonds, debentures, or obligations issued by American Samoa, Guam, Puerto Rico, or the Virgin Islands, if you previously added them on Line 2.
- Line 14: Report any income from Lloyd’s plan of operation if reported on Form IL-1065.
- Line 15: Subtract income for which you have claimed a credit under IRC Section 1341.
- Lines 16a-16g: Report various expenses related to federally tax-exempt income and federal credits. These include interest expenses relating to municipal income, interest on tax-exempt bonds, bond premium amortization, and others.
- Line 17: Add up the amounts on Lines 16a through 16g.
- Line 18: Add Lines 12-15 and Line 17. Transfer the result to Line 19.
Line 20: Interest on Illinois State and Local Government Obligations
This line is used to report interest on various bonds issued by Illinois state and local governments. These amounts are taxable for Illinois income tax purposes, but they might not be taxable for federal purposes, so they need to be reported on this form. You must attach a copy of the statement that identifies the payer and the amount of interest for each obligation. The sub-lines of Line 20 are as follows:
- 20a: Illinois Housing Development Authority Bonds and Notes (except housing-related commercial facilities bonds and notes). Report the interest received from these bonds here.
- 20b: Illinois Development Finance Authority Bonds, Notes, and Other Obligations (only venture fund and infrastructure bonds). If you have received interest from these specific bonds, report it on this line.
- 20c: Illinois Sports Facilities Authority Bonds. Include interest from bonds issued by this authority here.
- 20d: Illinois Development Finance Authority Bonds (under Sections 7.80 through 7.87 of the Illinois Development Finance Authority Act). Report interest from these bonds here.
- 20e: Illinois Development Finance Authority Bonds or Illinois Finance Authority Bonds Issued Under the Asbestos Abatement Finance Act. Report the interest you’ve received on these bonds here.
- 20f: Bonds Issued by the Illinois Finance Authority Under the Illinois Finance Authority Act. Report the interest on bonds issued by the Illinois Finance Authority here.
- 20g: Southwestern Illinois Development Authority Bonds. Report any interest from bonds issued by the Southwestern Illinois Development Authority here.
- 20h: Illinois Power Agency Bonds Issued by the Illinois Finance Authority (under Other Powers Article in the Illinois Finance Authority Act). Report interest from these bonds here.
- 20i: Central Illinois Economic Development Authority Bonds. This line is for interest on bonds issued by this authority under the Central Illinois Economic Development Authority Act.
- 20j: Eastern Illinois Economic Development Authority Bonds. Report interest received from these bonds here.
- 20k: Southeastern Illinois Economic Development Authority Bonds. Interest on these bonds should be reported here.
- 20l: Southern Illinois Economic Development Authority Bonds. Include interest on bonds issued by this authority here.
- 20m: Illinois Urban Development Authority Bonds. This line is used for interest on bonds issued by the Illinois Urban Development Authority.
- 20n: Downstate Illinois Sports Facilities Authority Bonds. Report any interest from these bonds here.
- 20o: Western Illinois Economic Development Authority Bonds. Report interest from bonds issued by this authority here.
- 20p: Upper Illinois River Valley Development Authority Bonds. Report interest on these bonds here.
- 20q: Will-Kankakee Regional Development Authority Bonds. This line is for interest on bonds issued by this authority.
- 20r: Tri-County River Valley Development Authority Bonds. Report any interest from bonds issued by this authority here.
- 20s: Quad Cities Regional Economic Development Authority Bonds and Notes (if declared exempt from taxation by the Authority). This line is for interest on bonds issued by this regional authority, only if they are exempt from taxation.
- 20t: Quad Cities Interstate Metropolitan Authority Bonds. Report interest on these bonds here.
- 20u: Rural Bond Bank Act Bonds and Notes. Report interest from bonds issued under the Rural Bond Bank Act here.
- 20v: Bonds Issued Under the Export Development Act of 1983. This line is for interest on bonds issued under this Act.
- 20w: College Savings Bonds Issued Under the General Obligation Bond Act (in accordance with the Baccalaureate Savings Act). Report interest on these bonds here.
- 20x: New Harmony Bridge Authority Bonds. Report interest on bonds issued by this authority here.
- 20y: New Harmony Bridge Bi-State Commission Bonds. Report any interest from these bonds here.
Continued
- Line 21: Add Lines 20a through 20y, which include various Illinois governmental bonds.
- Line 22: Add Lines 19 and 21, and transfer the total to Line 23.
- Line 23: Enter the amount from Line 22 here.
- Line 24: Subtract federally taxed Illinois state refunds from prior years.
- Line 25: Report dividends received, including IRC Section 78 foreign dividend gross-ups.
- Line 26: Include contributions made to job training projects (Form IL-1120-ST and IL-1065 filers).
- Line 27: Report reparations or other amounts received by victims of persecution by Nazi Germany (Form IL-1041 filers).
- Line 28: Subtract income eligible for a deduction under IRC Section 835.
- Line 29: Report income from Illinois pre-need funeral, burial, and cemetery trusts.
- Line 30: Subtract income earned by nuclear decommissioning trusts.
- Line 31: Subtract recovery of items previously deducted on federal Form 1040 Schedule A by the decedent (Form IL-1041, Estate filers).
- Line 32: Subtract refunds of state income taxes added back in a prior year on Schedule M, Line 5 (Form IL-1041 filers).
- Line 33: Subtract excess business loss disallowed under IRC Section 461(l)(1)(B) (Form IL-1041 filers).
- Line 34: Subtract unused patronage or nonpatronage loss amounts from Schedule INL (Form IL-1120 filers).
- Line 35: Deduct disallowed cannabis deductions under IRC Section 280E.
- Line 39: Enter any eligible subtractions as approved by the Illinois Department of Revenue (IDOR).
- Line 40: Add Lines 23-39 and enter the total on your relevant tax form.