What is Tax Form 1120-S?

business partners reviewing documents to begin filing tax form 1120-S

For those who own businesses, understanding the tax forms relevant to their business and how they pertain to each type of entity is essential. Businesses might be filed on a personal return, a Form 1065, an 1120, or an 1120-S, depending on the type of entity.

For S-Corp shareholders, 1120 S tax form is the tax form the company will file as a prerequisite to the owners filing their own taxes. So what is this tax form, what does it include, and how does it differ from the other forms (especially the 1120)? Read on for our analysis of these questions.

What is Form 1120-S?

Businesses registered as an S Corporation file a Form 1120-S with the IRS to report income, losses, gains, deductions, tax credits, and any other information that pertains to the business. Simply stated, Form 1120-S is the tax return of an S-Corp that is filed despite the fact that the business doesn’t directly pay taxes. It supports the income or losses that will pass through to the company’s shareholders.

Alongside the Form 1120-S, the company takes the reported income or losses and shows each owner’s percentage on a Schedule K-1. Those Schedule K-1s are submitted with the tax return, and copies are presented to each owner to show on their tax returns as a pass-through income or loss.

Essentially, the form and accompanying K-1s show the IRS that the company meets the requirements to be an S Corp, pays its owners reasonable compensation, and specifies the amounts of income, deductions, or credits that pass through to each shareholder.

What Is the Difference Between IRS Forms 1120 and 1120-S?

While Form 1120-S is used for corporations designated as S Corps, Form 1120 is used by corporations designated as C Corps. While both types of corporations offer their investors protection from personal liability, their tax treatment is very different.

S Corp owners see the business’s profits and losses passed through to themselves to be claimed on their personal tax returns, meaning taxes are paid at the shareholder’s personal tax rate. A C Corp is different in that the corporation takes the profits or losses and pays a standard 21% corporate tax rate when profitable.[1] Shareholders of C Corps then pay taxes on their dividends at the tax rate that applies to them, resulting in a form of double taxation.

Form 1120-S ultimately tells the IRS what profits or losses belong to each shareholder, while Form 1120 tells the IRS what the company owns or what losses it can claim.

Information Included on Form 1120-S

Before starting to fill out Form 1120-S, it is important to have the basic information handy. That information includes  [2]:

  • The date of incorporation
  • Employer Identification Number (EIN)
  • The business activity code
  • The S Corp election date
  • A list of services or products offered
  • The income statement
  • The balance sheet
  • Whether cash or accrual accounting is used
  • Any payments to independent contractors totaling $600 or more
  • Business stock information
  • W-2 compensation paid to employees and reasonable compensation paid to owners working in the business

Filling out Form 1120-S will be similar to other business tax forms in that it requires the numbers related to business activity to mirror the profit and loss statement and the balance sheet. 

two business partners checking they've included all of the information needed on form 1120-S

Gross receipts, gross profits, losses, compensation paid to shareholders and non-shareholder employees, costs of goods sold, depreciation line items, and interest paid will all be recorded.

Additionally, the S Corp will provide a list of shareholders on Schedule B [3]  that provides the name, tax identification number, type of shareholder, responsible person for reporting shareholder income, credits, deductions and additional items from the Schedule K-1.

To break down the additional schedules for an 1120-S in a simplified manner:

  • Schedule K: This schedule is a summation of the tax deductions, income, and tax credits for the company’s shareholders for the tax year.
  • Schedule L: This section is representative of the business balance sheet and might or might not need to be filled out depending on how questions 11a and 11b on Schedule B are answered.
  • Schedule M-1: Required when gross receipts or total assets exceed $250,000 at year-end.
  • Schedule M-2: Not always filled out but details the corporation’s year-end accumulated adjustment accounts.

Important Dates and Timelines

The deadline for filing Form 1120-S is the 15th day of the third month after the end of the company’s tax year. If the corporation is, like most, ending its tax year on December 31st, then its filing date will be March 15th. Should that date fall on a weekend or holiday, the filing date will typically be the following Monday.

Should the corporation need more time to file, an extension may be filed using Form 7004. The form may be e-filed, and extends the due date to September 15th. Just like the original filing date, if the extension date falls on a weekend or holiday, the date is extended, typically to the following Monday.

It is important to note that if the company has a tax liability and files an extension, interest can be assessed for the extra time spent completing the form. Should the business show a loss, interest owed to the IRS will not be a factor.

Summing It All Up

business partners filing tax form 1120-S

The 1120-S is a form similar to a C-Corp’s Form 1120 but represents the liabilities or credits passing through to the shareholders rather than the liabilities or credits for which C Corporation is responsible. 

Most importantly, though, Form 1120-S means the business owner(s) have made a sound decision to Form an S-Corp for tax purposes and will potentially save money on their tax liabilities, including the payment of unnecessary payroll taxes.

RCReports provides reasonable compensation calculations for businesses and accountants to ensure owners properly compensate themselves, avoiding costly IRS penalties and overpayment of payroll taxes. Get a demo of RCReports today to see how definitively knowing reasonable compensation amounts saves companies unnecessary risk and tax payments.

Sources

1. Cornell Law School. (2022, May). Tax Cuts and Jobs Act of 2017 (TCJA). LII / Legal Information Institute. https://www.law.cornell.edu/wex/tax_cuts_and_jobs_act_of_2017_(tcja)

“For businesses and investors, the TCJA greatly reduced the corporate tax rate,  changed flow-through taxation, increased depreciations, and made fundamental changes to taxing international income. First, the corporate tax rate was permanently reduced to a 21% flat tax rate from 35%.”

2. Smith, R. (2024, January 3). How to complete Form 1120s – S Corporation tax Return. Bench. https://www.bench.co/blog/tax-tips/irs-form-1120s

3. Form 1120-S filing fundamentals for your business. (2024, January 10). Block Advisors. https://www.blockadvisors.com/resource-center/small-business-tax-prep/form-1120s/

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