Filing Form 1120-S? Here's What You Need to Know

Form 1120-S is the federal income tax return form that S corporations or LLCs taxed as S corps have to file.

If you're trying to file this form on your own, chances are you will need some guidance. The form is long and complex, and the probability of messing up is high.

Follow this article to educate yourself on the purpose of Form 1120-S and how to file it so that you get it right the first time.

What Is Form 1120-S?

If you're running a business in the United States, chances are you might be using form 1120 to file your tax information with the IRS. But many small businesses confuse this with Form 1120-S. The extra 'S' in the name stands for S corporation.

If your business is running as an S corporation, then instead of Form 1120, you'll have to fill in Form 1120-S as your company's federal income tax return.

This form gives the IRS a detailed insight into the finances of your corporation, including an overview of income, deductions, and credits.

What Is An S Corporation?

S corporations are those which fulfill certain criteria under the Internal Revenue Code. S corporations can pass on income directly over to shareholders, along with deductions and credit as well, without the obligation to pay federal corporate income tax on this income.

Usually, S corporations have 100 or fewer shareholders. LLCs can also be taxed as S corps and have to fill out the same form.

S corporation status can be requested by filing Form 2553. But the window for already established and running businesses to transition into S corporations is limited to within the first 2.5 months following their first financial year.

For instance, if a business that started on 20th January 2020 wants to transition into an S corporation, it can do it either before the 20th January 2021 or before 5th April 2021.

Employees of an S corporation must file Form W-2 to file their income returns, while shareholders need to file Schedule K-1 from Form 1120-S.

Information to Keep At Hand While Filling Form 1120-S

Like every other tax form, the 1120-S can be quite confusing with all its boxes and blanks. Thus, it is advised that you keep all of the information in the following checklist close at hand before filing Form 1120-S.

  1. Date of incorporation of the firm.
  2. List of products or services that your company offers.
  3. Business Activity Code.
  4. Employer Identification Number (EIN): This is a 9-digit unique ID that the IRS issues to businesses for identification purposes in their database. You can apply for an EIN on the IRS site or by mailing them Form SS-4.
  5. The date of Electing the S Corporation Status: This date will vary based on your accounting. It will be 1st January if you follow the calendar year or the first day of your fiscal year.
  6. Profit and loss statement and balance sheet for the corporation.
  7. Accounting Method: Firms use either cash or accrual accounting methods, so be sure to clarify with your accountant if you have any doubts.
  8. Independent Contract Payments: If you have paid more than $600 to any independent contractor, you need to file Form 1096. These need to be reported on the form.

Filling out Form 1120-S: Basic Instructions

It is not the best practice to fill out a tax form like 1120-S by yourself if you haven't seen a professional accountant complete the same. There are complexities which, if not reported correctly, can lead to difficulties later.

However, if you do want to file Form 1120-S on your own, here is the basic set of instructions you must pay heed to:

Part 1

Part 1 pertains to basic business information such as the date of incorporation, EIN, and the date of S corporation status election. Profit and loss information is also presented in Part 1 of the form.

If you choose to fill out the form yourself, sign right next to the space given. If you're getting the form filled by a professional service, they too will sign the form other than just the owner.

Schedule B

Schedule B is the longer part of the form. It will require you to fill out the particulars of your business, such as the products and services you offer, business activity code as well as the accounting practice your business follows.

When filling in this section, you will find that some questions pertain only to particular types of businesses. Questions regarding shareholders and business payments would also need to be answered.

Schedule K

This Schedule summarizes the S corp's shareholders' income, tax deductions, and tax credits within the financial year.

Schedule L

The filling out of Schedule L is contingent on your answers to questions 11a and 11b on Schedule B.

If the answer to both the questions was "Yes", then you can skip this section. Answering "No" for either of the questions would demand that you fill out Schedule L.

Schedules M-1 and M-2

If you had to fill out the previous schedule, you would need to fill in Schedule M-1 as well. This section balances the company's income or loss as per the accounting book with the tax return.

If you are tracking business transactions all by yourself, you may omit certain expenses in your accounting books, leading to confusion later. A professional bookkeeping service like Fincent ensures error-free accounting so you can file your returns without worrying about mistakes.

Schedule M-2 reports the balancing profit or loss that the corporation has made after all deductions.

Due Date for Form 1120-S

The due date to file the 1120-S tax form is contingent on the type of calendar the business follows. Technically, it is to be submitted by the 15th day of the third month since the end of the previous year.

For instance, if a firm follows the calendar year, its books for the particular year would close on 31st December. That allows the firm to file Form 1120-S by 15th March of the coming year.

S corporations that need more time to file Form 1120-S can apply for an extension, pushing the deadline to 16th September of the coming year.

Where to Mail Form 1120-S?

Form 1120-S can either be filed electronically, using the IRS' e-file system.

Alternatively, one can also mail the form to the IRS on the basis of their business residence as well as the total assets of the firm at the end of the year. You can find the detailed guide to the right address on this page.

In Closing

As an S corp, you must fill out several tax forms while filing your annual returns. To avoid penalties from the IRS, you need to stay on top of your taxes, and the best way to do that is to keep a constant check on your business transactions.

That's why it's helpful to employ the services of Fincent, a professional bookkeeping service made with creative professionals in mind. While you focus on your S corp, leave the bookkeeping to us to save time and money. Schedule a call today.