The program makes the adjustment automatically based on entries in the return.
Line 4a, “Depreciation” – This is the book-to-tax adjustment for depreciation that is made when book depreciation is greater than tax depreciation. Guaranteed payments are entered on the DED screen, line 10, “Guaranteed payments to partners,” the 8825 screen, line 15, “Other, Guaranteed payments,” or the RENT screen, line 16, Other expenses, “Guaranteed payments.” There is no override for this line. Line 3, “Guaranteed payments” – This is the amount of guaranteed payments, excluding health insurance amounts, included on Schedule K, line 4. Additional income items reported for tax purposes, but not included in book income, are entered on the M1 screen, line 2. The increased income amount flows to this line automatically. The increased income is a tax item only and is not generally included in book income. Line 2, “Income included on Schedule K, lines 1, 2, 3c, 5, 6a, 7, 8, 9a, 10, and 11, not recorded on books this year” – Certain credit forms require that the amount of credit be included in other income. The end result reported on Schedule M-1, line 1, should match the amount reported on the financial reporting statements for the partnership’s book income. The calculation for the Form 1065, Schedule M-1, is as follows: Schedule M-1, line 1, “Net income (loss) per books,” is not available without book-to-tax adjusting entries. The calculation for Schedule M-1 is done in reverse from the form itself. Schedule M-1 is required when the gross receipts of the partnership are greater than $250,000, or the total assets are greater than $1,000,000. 
How is book income calculated on Schedules M-1 and M-3 on Form 1065?
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