Form 1120-S is a business tax return for companies that are listed as an S Corporation. Also referred to as Schedule K-1, Form 1120-S is used to report income, gains, losses, deductions, and credits of S corporations throughout a fiscal year. This form functions as an S corporation’s only corporate income tax return. In addition, the form allows for the IRS to count the income and losses of an S corporation directly against the personal income tax of shareholders. 

What Is an S Corporation?

An S corporation is a business commonly referred to as a “pass-through” entity—an organization that is allowed to pass all income, deductions, and financial losses directly to its shareholders for tax purposes. Although S Corporations are exempt from paying corporate taxes, the IRS requires that all income and losses reported by an organization be recorded, as well as the names of its shareholders.

The difference between S corporations and C corporations

S corporations are different from C corporations when it comes to reporting income for tax purposes. C corporations are the standard corporation formed by shareholders. They pay federal income tax, and shareholders have to file income tax on their salaries and any dividends received from stocks or shares in the corporation—commonly referred to as “double taxation”. 

As previously mentioned, an S corporation passes all income, deductions, and financial losses directly to its shareholders for tax purposes. According to the IRS, there are certain criteria that an S corporation must meet.

  • Have fewer than 100 shareholders.
  • Comprise shareholders who are “individuals, certain trusts, and estates”.
  • Comprise shareholders who live in the United States.

Why Is Form 1120-S So Important? 

Form 1120-S is important because it provides the IRS with details about your company’s income, as well as identifying the percentage of ownership among different individual shareholders. The form also has a direct effect on the individual taxes of shareholders, as they cannot complete their personal tax returns until Form 1120-S is filled out. 

The IRS states that Form 1120-S is due on the “15th day of the third month after the end of the corporation’s tax year.” For most business owners, the 15th day of the third month is March 15th. Savvy business owners will fill the form out early to allow shareholders to complete their personal taxes in time.

What Is the Difference Between Form 1120 and 1120-S

The “S” at the end of the form identifies which type of corporation should use which form. Form 1120-S is filled out by S corporations, while form 1120 is filled out by C corporations.  

How to Fill Out Form 1120-S

Your company may either elect to have a corporate officer or your business owner fill out Form 1120-S. Anyone tasked with filling out tax forms will need to sign Form 1120-S before the IRS can accept it.

The form is broken up into three distinct sections.

  • Your corporation’s information
  • Shareholder information
  • The percentages of each shareholder’s share in the current year’s income, deductions, credits, and other items.

Other necessary information

You will need the following information to accurately complete Form 1120-S.

  • Your incorporation date
  • Products and services sold by your company
  • Your Employer Identification Number (EIN)
  • The date that you elected for S corporation status
  • Your complete profit-and-loss statement—including a balance sheet.
  • Accounting practices used

Related IRS forms

When filing electronically, you may need to include additional documents—such as bank statements, contracts, and other IRS forms—with Form 1120-S.

  • Form 7004. This form allows you to request an extension of up to six months for filing Form 1120-S.
  • Forms 940, 941, and 944. Form 940 is used to report federal unemployment tax, while 944 or 941 should be used for federal income, Social Security, and Medicare taxes. 
  • Form 1099 is used to record miscellaneous payments—including non-employee compensation like income from a rental property. 

Conclusion

Form 1120-S is used by an S corporation to report its income and list the names and ownership percentages of its shareholders. In addition, to fill the form out, S corporations will need to know their incorporation date, Employer Identification Number, their complete profit-and-loss statement, and accounting practices. 

Shareholders cannot file their personal income tax returns until they receive information from  Form 1120-S, so it’s prudent to ensure the form is completed early. Although the form is relatively simple to fill out, you’ll need specific information about your business and when it was incorporated to complete it.

 

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