Form 1120-S: Tax Return for S Corporations

Overview and Filing Instructions

If you’re running any business, you’ll need to know everything concerning your tax obligations and the tax forms to file to have a trouble-free record with the IRS.

For an S-corp owner, Form 1120-S is the most important. 

Here’s what you need to know about Form 1120-S, including what’s on it, how to fill it out, and when to file it. But that’s not all. We’ll be answering some common questions at the end of this guide. 

  Written by Melissa Pedigo, CPA
Form 1120-S: U.S. Income Tax Return for an S Corporation

What is Form 1120-S?

Form 1120-S is the annual federal income tax return used for S-corporations.

Don’t confuse Form 1120-S with Form 1120 and Form 1120-C.

Form 1120 is the U.S. Corporation Income Tax Return for C-corps.

Form 1120-C is the U.S. Income Tax Return for Cooperative Associations, like farmers and electric cooperatives in rural areas.

Who needs to file Form 1120-S?

According to the IRS, a corporation or other entity must file Form 1120-S if:

  • it elected to be an S corporation by filing Form 2553
  • the IRS accepted the election, and 
  • the election remains in effect

S-corps, therefore, should only file Form 1120-S once they receive confirmation that the IRS accepted their Form 2553 election.

For clarity, S-corps should have no more than 100 domestic shareholders (foreign owners are not permitted) and are pass-through entities for tax purposes. 

Pass-through entities are business organizations whose profits flow to the individual shareholders. The business is not taxed on the profit. The shareholders pay tax on their respective share of profits.

The Information You'll Need to File Form 1120-S

Form 1120-S is a five-page document requiring a broad range of information, including the address of the business, business income, itemized deductions, and estimated tax payments. 

In addition, Form 1120-S has five schedules, including the crucial Schedule K, which tabulates individual shareholders’ pro rata share of profits.

Before filing Form 1120-S, you’ll need to have the following items ready.

  • Your Employer Identification Number (EIN)
  • Your date of incorporation
  • Your financial statements, including profit and loss and balance sheet.
  • A list of your products or services
  • Your accounting method, whether cash or accrual.
  • Your business activity code, and 
  • The date you elected S corp status

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Form 1120-S Instructions

Below is a breakdown of Form 1120-S by section, providing detailed instructions so you can follow along as you fill out each part.

Front Page

Basic Information (front page, lines A to J)
Form 1120-S, Lines A to J

Source: IRS.gov

Much of the information required in this section, including the business address, business activity code (per the IRS database), date of incorporation, and the EIN, can be obtained from the legal documents of the company such as the Articles of Incorporation.

For Total Assets in Line F, you will need to fill out Schedule L first, but only if Schedule L applies to you.

Schedule L only applies if a corporation’s total receipts or total assets was more than $250,000 during the year under consideration.

If Schedule L doesn’t apply to your business, you will leave Line F blank.

Income (front page, lines 1-6)

Form 1120-S, Income (Lines 1 to 6)

Source: IRS.gov

Here, an S-corp needs to input information relating to its main business income, excluding tax-exempt income, returns and allowance amounts, and its costs of goods sold.

For clarity, Line 4’s net gain (loss) from Form 4797 relates to gains or losses on the sale of assets used in business. 

You may also have other income on Line 5. This would include things like royalties or income from non-core business activities.

Deductions (front page, lines 7-21)

Form 1120-S, Deductions (Lines 7 to 21)

Source: IRS.gov

In this part, S-corps should input deductible expenses. These include officers’ compensation, salaries, wages, repairs, bad debts, and rent, among others. 

Under other deductions (Line 19) enter the total allowable business deductions that aren’t deductible elsewhere on page 1 of Form 1120-S. 

For this, you’ll need to attach a statement listing each deduction included on this line, specifically by type and amount.

Tax & Payments (lines 22-27)

Form 1120-S, Tax Payments (Lines 22 to 27)

Source: IRS.gov

This section relates to the tax and tax payments. Since S-corps are pass-through entities, generally S-corps don’t make estimated payments because they don’t pay income tax. 

But there are some unique taxes an S-corp may need to record in this section. That includes things like capital gains or losses and certain fuel taxes.

After you complete the entire tax return, you and your paid tax preparer (if applicable) will sign and date the bottom of page 1.

Schedule B (pages 2 and 3)

Schedule B is the longest section on Form 1120-S. It covers the entire page 2 of the form and part of page 3.

The following is a snapshot.

Form 1120-S, Schedule B

Source: IRS.gov

This section includes several questions that require Yes/No answers. This will require someone with an in-depth knowledge of the S-corp, particularly its financial information and its ownership.

That said, Line 14(a) relates to payments that would require an S-corp to file Form 1099. Typically, these are payments of $600 or more in a single calendar year, paid to independent contractors or self-employed individuals. 

If an S-corp made such payments, it will need to file a separate Form 1099 for each recipient.

Schedule K (page 3)

Schedule K is a summary schedule of all shareholders’ shares of the corporation’s income, deductions, and credits that pass through to the shareholders.

All corporations must complete Schedule K.

Here’s what the top of Schedule K looks like.

Form 1120-S, Schedule K

Source: IRS.gov

Remember not to confuse Schedule K and Schedule K-1.

While Schedule K is a summary, Schedule K-1 shows each shareholder’s separate share of the amounts on Schedule K.

Note: A dated receipt must support charitable contributions on Line 12a.

Schedule L (page 4)

Form 1120-S, Schedule L

Source: IRS.gov

This is an S-corp’s balance sheet and should typically agree with the corporation’s books and records.

Schedule L is only required for S-corps whose assets are over $250,000.

Schedule M-1 (page 5)

Form 1120-S, Schedule M-1

Source: IRS.gov

Schedule M-1 reconciles income per the books of account with income per return. This is because the rules of financial accounting (Generally Accepted Accounting Principles) often differ from tax accounting rules.

Some things that can appear on Schedule M-1 are:

  • Tax-exempt interest that would be recorded in the books but isn’t taxable
  • Limitations on meals and entertainment expenses
  • Differences in depreciation calculations

S-corps with revenues of less than $250,000 for the tax year and assets of less than $250,000 at the end of the tax year are not required to fill out Schedule M-1.

Page 5: Schedule M-2

Form 1120-S, Schedule M-2

Source: IRS.gov

This schedule reports the accumulated adjustment accounts (AAA) and provides a more detailed look at the shareholders’ capital accounts.

Schedule M-2 is on the last page of Form 1120-S.

Form 1120-S - Fill Out & Send!

Complete your Form 1120-S via the fillable pdf form below. After completing the form, select ‘Choose a Recipient’ and enter a recipient name and email address to which the completed form will be sent (max. one recipient can be added).

 

Disclaimer:

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Frequently Asked Questions

What is Form 1120-S used for?
When is Form 1120-S due?
How do I file Form 1120-S?
Where do I mail Form 1120-S?
What is the penalty for filing Form 1120-S late?

Form 1120-S is the tax return used by S-corps to report their tax information to the IRS.

Make Tax Prep Easier

Remember, filling out Form 1120-S can be time-consuming. It can also be expensive, especially if you choose to engage a CPA.

However, with Lili’s Tax Preparation software, you’ll receive a prefilled Form 1120-S based on the expenses you’ve already categorized using the Lili platform, in a process that is smooth and painless. To bid goodbye to your tax-filing headaches, open your Lili account today.