IRS Form 1120S: Definition, Download, & 1120S Instructions

In order to determine whether you should file a Form 1120S, it is important for taxpayers to understand the difference between the various forms.

S-corps and LLCs taxed as S-corps utilize Form 1120S to report their net profits to the IRS each year. The S-net corporation’s profits, like those of partnerships, are distributed to its stockholders. On their personal tax returns, shareholders record their portion of the S-profits. corp’s

You may print out Form 1120S and fill it out by hand. The 10 stages to completing Form 1120S are listed below:

1. Gather the Information Required for Form 1120S

Whether you use tax software or hire a tax expert to prepare your taxes, you’ll need information and evidence to complete Form 1120S. Financial statements and information about your stockholders are included in the data.

The following are the ten items you’ll need to complete Form 1120S:

1. Information about your S-corporation or limited liability company (LLC): The name of the company, the date the S-corp was formed, the date of your S-corp election, your employment identity number, and your postal address are all required.
2. Whether you’re filing for the calendar year or the fiscal year.
3. Briefly define the S-business corp’s activity, the principal product or service you provide, and the business activity code that corresponds to your industry. The Instructions for Form 1120S include a comprehensive list of business activity codes.
4. Shareholder information includes each shareholder’s name, address, tax identification number, and ownership percentage. In addition, request that stockholders furnish you with a Form W-9.
5. Profit and loss statement: This financial report, also known as an income statement, details the S-income corp’s and spending for the year. In QuickBooks, you may quickly and simply produce a profit and loss report.
6. The balance sheet report outlines all assets, liabilities, and owner’s equity as at the conclusion of the fiscal year. Running a balance sheet report in QuickBooks just takes a few minutes.
7. Cash and accrual accounting are the two types of accounting. The cash foundation of accounting is used by the majority of S-corps. Check out our guide on the cash vs accrual technique to learn more about accounting methods.
8. Print a report detailing the specifics of all fixed asset acquisitions, such as equipment, machinery, buildings, cars, and other assets. This information comes in handy when calculating the S-depreciation corp’s deductions for the year. The purchase date, the date the equipment was initially utilized for commercial activities, the purchase price, any installation fees or major changes, and the kind of equipment or asset are all required.
9. Expense report for payroll: Print a report detailing the remuneration given to each S-corp employee for the tax year. Which workers are S-corp officers should be highlighted. Because remuneration for officers is reported on a different line item from salaries and wages given to other workers, this information will be beneficial.
10. Forms 1099: Did your S-corp have to submit any Forms 1099 for independent contractors, for example? This question is asked on the Form 1120S, so double-check. Our article on Form 1099 reporting might assist you in determining whether or not you are obligated to issue 1099s.

As you can see, you’ll require multiple reports to summarize your S-financial corp’s activities during the year. Consider adopting QuickBooks if you need a better method to keep track of all of this information.

2. Complete the General Information Section of Form 1120S.

The first few line items in 1120S are rather simple. The name of the S-corporation or LLC that is taxed as an S-corporation will be provided. You’ll also provide the company’s postal address, EIN, incorporation date, S-corp election date, and business activity code.

Name and EIN are required fields on IRS Form 1120S.

Here are some pointers for filling out the top area of Form 1120S’s first page:

• In the line above the name, if the S-corp has adopted a fiscal year, write the dates for the start and end of the fiscal year.
• S-corp election date: You may need to enter or type-specific wording in the blank area in the top margin if you’re submitting the S-corp election (Form 2553) with Form 1120S. Details may be found in the Form 2553 Instructions.
• Your industry is represented by a six-digit number called a business activity code. The Instructions for Form 1120S provide a list of business activity codes.
• Item C: Small and mid-sized businesses with total assets of less than $50 million at the end of the tax year are exempt from filing Schedule M-3 and hence from checking the box on Item C.
• Item F: After completing Schedule L, you may choose to fill out Item F (total assets at the end of the year) (the Balance Sheet).
• Check any boxes that apply under Item H. Check the Final return box if the S-corp was dissolved and this is the final year the S-corp is submitting a return. Check the Amended return box if the S-corp is submitting another return to update or rectify a previously filed return.

3. Fill out the Income & Deductions section of Form 1120S.

The S-corp provides its revenue and deductions for the year on the first page of Form 1120S. Fill in Lines 1a through 21 using the profit and loss statement from the S-corp. Line 19 for Other Deductions, for example, requires supplemental forms or declarations to offer more data.

The S-income corporation’s and deductions are reported on IRS Form 1120S.

The following are some suggestions for completing the income and deductions part of Form 1120S:

• Line 1a should show typical business revenue, whereas Line 4 should show profits or losses from the sale of company assets. Schedule K on page 4 reports rental revenue, interest, and investment income.
• Officers’ Compensation, Salaries, and Wages: You’ll need to divide how much was paid to S-corp officers (Line 7) from how much was paid to all other workers (Line 8). If the S-total corp’s revenues for the year were at least $500,000. the S-corp may be required to disclose officers’ remuneration on Form 1125-E.
• State income taxes, state franchise taxes, business property tax, county, and municipal taxes, payroll taxes, city business licenses, and company registration fees are all included on line 12.
• Interest Expenses: Starting in 2018, S-corporations may only deduct a certain amount of interest paid on loans. Calculate how much interest you may deduct using Form 8990.
• Depreciation: Calculate the S-depreciation corporation’s deduction on Line 14 using Form 4562. To calculate depreciation, you’ll need to consult the S-fixed corp’s asset acquisitions report.
• Plans for pensions, profit-sharing, and other benefits: Contributions to 401(k) plans, SEP-IRAs, and other similar group retirement savings plans should be reported on Line 17.
• Employee Benefit Programs: Line 18 shows the expenses of health insurance benefits, group term life insurance benefits, and meals and lodging provided for the employer’s convenience. The particular regulations for handling health insurance benefits for shareholder-employees may be found in the IRS Instructions for Form 1120S.
• Other Deductions: List any deductions that don’t fall into any of the categories on Line 2 or Lines 7 through 18 on a separate statement. Other expenses that may be deducted include travel, phone calls, and postage. Businesses will no longer be able to deduct entertainment costs beginning in 2018. Penalties and fines cannot be subtracted. Only 50% of meals connected to business may be deducted.

Did you know that accountants may import QuickBooks data into their accounting software? When correctly configured, this may cut down on the time spent inputting data into tax software and help the tax preparation process run more smoothly.

4. Complete the Tax & Payments Section of Form 1120S.

This section calculates federal taxes that apply if the company was formerly a C-corp or is in the process of reorganizing with a C-corp in a tax-free manner. You’ll mention the expected taxes paid during the year, as well as any overpayments from the prior year, in this area.

Section 1120S of the IRS Form 1120S deals with taxes and payments.

S-corporations may owe federal taxes on Lines 22a through 27 of Form 1120S if they:

• Excess net passive investment income tax: This tax is imposed when an S-corp was formerly a C-corp and its net passive income exceeds 25% of its gross receipts for the year.
• Built-in gains tax: This tax is imposed when an S-corp was formerly a C-corp, the C-corp purchased an asset, the S-corp sold the asset, and the asset’s value grew.

5. Complete Schedule B of the 1120S Other Information

The 15 questions on Schedule B of the 1120S need a yes/no answer. The inquiries cover a broad range of issues, including whether the S-corp has shares in other businesses or partnerships, and if restricted stock has been granted. The instructions for Form 1120s go through the difficulties.

Schedule B of IRS Form 1120S.

Questions 11A and 11B on IRS Form 1120S Schedule B

Question 11 is divided into two parts. These questions are intended to help you determine if you need to complete Schedule L (the balance sheet) and Schedule M-1 (to reconcile book income to the tax return). You don’t need to complete these schedules if you can respond yes to both questions.

Schedule B Question 11 (IRS Form 1120S).

The following are some pointers for the 1120S Schedule B questions:

• Gross receipts (line 1a of page 1), all other revenue as stated on page 1, Form 8825, and Schedule K are included in total receipts.
• Total Assets: At the conclusion of the tax year, this is the total book value of the S-assets. corp’s

6. Complete Schedule D of Form 1120S Capital Gains and Losses.

Schedule D is used by S-corporations to report any capital gains or losses on their investment portfolio. This refers to the profits and losses you made when you sold stocks, bonds, mutual funds, and other assets. Schedule K reports the net amount of capital gains, which is subsequently assigned to each shareholder’s Schedule K-1.

The capital gains of an S-corp are summarized on IRS Form 1120S Schedule D.

The following are some Schedule D hints:

• If the S-corp was formerly a C-corp, the capital gains may be liable to the built-in gains tax or the tax on excess net passive income. For more information, see the FitSmallBusiness guide on S-corp taxes.
• Information required for Schedule D: For each investment deal, you’ll need to know the date and cost of the acquisition, as well as the date and amount of the selling profits.
• To record the specifics of each single investment deal, use Form 8849.
• To summarize the profits or losses by short-term and long-term holding periods, as well as the total gains for the year, use Schedule D.
• Short-Term Holding Period: The S-corp held an investment for one year or less.
• Long-Term Holding Period: The investment was held by the S-corp for longer than a year.
• The Schedule D instructions are different from the regular 1120S instructions and are available from the IRS.

7. Complete Schedule K and K-1 on Form 1120S.

The S-net corp’s business income, investment income, deductions, and credits for the year are summarized on Schedule K. Schedule K gets its data from page 1, Schedule D, the profit and loss statement, and a variety of other tax forms.

K-Schedule (IRS Form 1120S).

Prepare a K-1 form for each shareholder.

Amounts from Schedule K are distributed to each shareholder depending on their ownership percentage. For each shareholder, create a separate Schedule K-1. The amount from Schedule K multiplied by the shareholder’s percentage of stock ownership for the year is the amount stated on each shareholder’s K-1.

K-1 is the first schedule (IRS Form 1120S).

Preparation suggestions Schedule K-1 has the following items:

• Distribution to shareholders: Each S-corp shareholder will get a Schedule K-1 (Form 1120S) depending on their percentage of stock ownership.
• Assume an S-corporation has two stockholders. 60 percent of the stock is owned by one person, while 40 percent is owned by the other. After then, 60 percent of the funds from Schedule K are given to the first Schedule K-1 and 40 percent to the second Schedule K-1.
• Provide a Schedule K-1 to each shareholder by the filing deadline: The S-corp must provide a Schedule K-1 to each shareholder by the filing deadline (March 15th, or September 15th with an extension).
• Amounts move from Schedule K-1 to Form 1040: Shareholders report the amounts on their Schedule K-1 on their individual tax returns.
• Pass-through nature: S-corp income, deductions, and credits are passed through to shareholders’ personal tax returns via this allocation mechanism.

8. Fill out IRS Form 1120S, Schedule L.

The aim of Schedule L of Form 1120S is to supply the IRS with information on the S-assets, corporation’s liabilities, and equity. The data for Schedule L comes from the S-Balance corp’s Sheet report, which may be produced rapidly using software such as QuickBooks.

You’ll need two balance sheet reports: one for the current year (end of tax year columns) and one for the previous year (beginning of tax year columns). If you replied “yes” to questions 11A and 11B in Schedule B, you don’t need to fill out Schedule L.

Balance sheet for IRS Form 1120S, Schedule L.

The following are some suggestions for constructing Schedule L:

• Total Receipts and Total Assets: S-corporations must file Schedule L if their total receipts for the year were $250,000 or more, or if their total assets at the end of the year were $250,000 or more. (Question 11 on Schedule B asks you to take this exam.)
• For financial accounting purposes, the balance sheet of the S-corporation should match the balance sheet of Schedule L. This is significant because the balance sheet contains information about the S-assets corp’s and the money contributed by shareholders that are not available in the income and deduction section.

9. Complete the 1120S Schedule M-1.

Any discrepancies between the S-profit corp’s and loss report and its revenue and deductions for tax purposes are reported on Schedule M-1. Depreciation, for example, is a regular disparity between the books and the tax return (you might use straight-line for book accounting, but MACRS for tax purposes).

For IRS Form 1120S, use Schedule M-1.

The following are some of the most common variances between book accounting and Schedule M-1 tax returns:

• Depreciation: For your books, you could utilize straight-line depreciation, but for your S-corp tax return, you should use MACRS or the section 179 deduction.
• Meals: Meal costs are shown at 100% on your profit and loss statement, but you may only deduct 50% of them on Form 1120S.
• Interest on municipal bonds is recognized on the profit and loss statement of the S-corp, but it is tax-exempt on Form 1120S.

10. Complete Schedule M-2 of IRS Form 1120S.

The aim of Schedule M-2 is to reflect changes in the S-accumulated corp’s adjustments account (AAA), which is effectively your retained profits in the firm, throughout the course of the tax year. The AAA balance at the end of the tax year represents the amount of money in the S-corp that may be re-invested or given to shareholders.

For IRS Form 1120S, use Schedule M-2.

The following are some suggestions for completing IRS 1120S Schedule M-2:

• AAA is zero on the first day of the corporation’s existence as an S-corporation.
• With the exception of tax-exempt income, all sources of income enhance AAA.
• Expenses reduce AAA: Expenses (save those connected to tax-exempt income) reduce AAA.
• Payouts to shareholders: Both in-kind and monetary distributions to shareholders reduce AAA.
• Negative balance: If an S-corp has been operating at a loss, AAA may have a negative balance.
• Earnings and profits accumulated: The amount in column C pertains to earnings and profits accumulated if the S-corp was formerly a C-corp.
• When in doubt, consult the instructions on Form 1120S, which define particular guidelines to follow when computing AAA.

Frequently Asked Questions

When does Form 1120S have to be filed?

For calendar year S-corps, the deadline for submitting Form 1120S with the IRS and providing each shareholder with Schedule K-1 is March 15th. S-corps that have a fiscal year end on the 15th of the third month must submit Form 1120S by the 15th of the third month after the end of the fiscal year. S-corporations may apply for a six-month extension.

Is it necessary to submit Form 1120S with the IRS on a regular basis?

S-corporations only have to submit Form 1120S once a year. Even if they don’t make any money, S-corps are obliged to submit Form 1120S with the IRS every year they are lawfully in existence.

How can I make changes to my 1120S tax return?

The S-corp fills out a new Form 1120s and checks the box on line H to indicate that this is an updated return to modify a previously filed Form 1120s. Shareholders will need to receive copies of the updated Schedules K-1 from S-corps. The updated 1120S tax return should be accompanied by a full explanation of the changes.

Is Schedule M-2 required for all S-corps?

Schedule M-2 is not required if an S-corp does not have cumulative earnings and profits from prior years when it was a C-corp. S-corporations should calculate their AAA in case they need it in the future.

Final Thoughts

You should now have a decent concept of how to fill out Form 1120S and where to look for that information in the S-financial corp’s statements. Carefully complete the 1120S tax form and save copies of your work. If you have any doubts, get assistance.