What Is Form 1120S, and How Do You File It?
What is Form 1120S?
Form 1120S is the tax form S corporations use to file their federal income tax return (not to be confused with Form 1120 for C corporations). Every S corp needs to file one, including LLCs that are taxed as S corps.
You can download Form 1120S directly from the IRS website. Or if you use tax software, you can find it there too.
Information you’ll need to file Form 1120S
Before you jump in to the form, you’ll need to have the following items handy:
- Your date of incorporation
- A list of your products or services
- Your business activity code
- Your Tax ID or Employer Identification Number (EIN)
- The date you elected S corp status: This will be January 1 if your business operates on a calendar-year basis. It will be on the first day of your fiscal year if you operate on a fiscal-year basis.
- A profit and loss statement and a balance sheet: You can create these manually or if you use Bench, we’ll create them for you.
- Your accounting method: You’ll indicate on the form whether you use cash or accrual accounting.
- Independent contract payments: Any payments to independent contractors totaling at least $600 for the year will need to be reported on the form. You also must provide contractors with 1099 forms.
How to complete Form 1120S
The first step in filling out Form 1120S is calculating your net income or loss for the year. First, calculate your gross profit by subtracting Cost of Goods Sold from sales and then add net gain or loss from Form 4797 and any other income or losses to arrive at your total income or loss.
Then you’ll add up all of your deductible expenses—such as salaries and wages, taxes and licenses, interest and rent—and subtract these from your total income or loss to arrive at your net income or loss.
Next up is the Tax and Payments section. You’ll include excessive net passive income or LIFO recapture tax (if any) that you paid this year, as well as estimated taxes or overpayments you made and estimated tax penalties you owe.
Form 1120S Schedules
There are several “Schedules” that come with Form 1120S that you’ll need to fill out.
Here, you will include such information as the accounting method you use and your primary business activity and products or services.
Schedule L and Schedule M-1 (if required)
Schedule L will report to the IRS the total amount of your business assets, liabilities and equity at year-end.
Schedule M-1 will reconcile and report any differences between what’s reported in your financial statements and your taxable profits.
(Note: If your business had less than $250,000 in total receipts and less than $250,000 in total assets last year, you don’t have to fill out either of these schedules).
Reconcile any undistributed net income of the business by making adjustments for any income and distributions made during the year. The last line of this schedule — or the balance at the end of the tax year — will tell you how much cash is available to reinvest or distribute to shareholders.
Report business income, credits and deductions for the year for each shareholder. All shareholders will receive a Schedule K-1, which is used to report their share of net earnings on their personal returns.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.