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What Is Form 1120-S?
Form 1120-S is an Internal Revenue Service form that S Corporations use to report the company’s financial activity for each tax year. Some of the financial activity reported on this form include:
- Gains
- Losses
- Deductions
- Credits
Corporations only use this form if the company has already filed IRS Form 2553 and the IRS has approved S Corp election for the company.
S Corps are pass-through entities , so they do not pay federal income taxes directly. Instead, shareholders report the corporation’s profits on their personal income tax return.
Even though S Corps aren’t subjected to corporate taxes, Form 1120-S is still essential. The information on it must be consistent with the Schedule K-1 forms filed by individual shareholders, which report what percentage of the corporation is owned by each shareholder to the IRS.
The Schedule K-1 form allows the IRS to determine what taxes each business owner must pay or be refunded on their personal tax return. Without an accurate 1120-S and Schedule K-1, the S Corporation and shareholders may not receive certain tax benefits.
Click here to read more about Form 1120-S, access a PDF copy of the form, and read instructions about filling it out.
What is Form 1120-S Used For?
Form 1120-S is the S Corp’s tax return. Even though S-Corps do not pay federal income tax, their profits, losses, deductions, and credits still need to be reported to the IRS. The IRS will use the corporate tax return documents to determine how to tax each individual shareholder.
For more information about Form 1120-S and what it is used for, read this article.
Differences Between Form 1120 and 1120-S
Form 1120-S is filed by S Corps for federal taxes, while Form 1120 is filed by C Corps for taxes. S Corps and C Corps are both classified as corporations; however, they have several differences and offer different advantages and disadvantages to business owners.
C Corporations are not pass-through entities like S Corps. C Corps must fill out and File Form 1120 with the IRS and pay federal income tax at the corporate level.
Shareholders in a C Corp are required to pay personal income tax on both their salary from the corporation and dividends received from the corporation.
This tax structure is called “double taxation” because the C Corp is taxed first at the corporate level, then shareholders are taxed again as individuals. Double taxation is often seen as the most significant disadvantage for forming a C Corp rather than an S Corp.
Despite double taxation, C Corps do offer shareholders multiple advantages:
- C Corps can have an unlimited amount of shareholders
- Shareholders do not have to be US citizens or legal residents
- C Corps can have more than one class of stock
- There is a lower minimum tax rate for C Corps
- C Corps have an easier time securing outside financing
How To Fill Out Form 1120-S
In most cases, S Corporations can electronically file their Form 1120-S with all related forms, schedules, statements, and attachments. Some of these attachments may include:
- Form 7004- Automatic extension of time to file
- Forms 940, 941, and 944- Employment tax returns
- Form 1099- Miscellaneous income
Form 1120-S is usually required to be filed by the 15 th day of the third month after the end of the tax year. Any corporation that uses the regular calendar year would need to file before March 15 th.
You will need the following information to fill out Form 1120-S accurately:
- The date of incorporation
- A list of products and services
- Business activity code
- EIN
- Date of elected S Corp status
- Profit and loss statement with a balance sheet
- Accounting method
- Any independent contract payments
For the IRS to accept Form 1120-S, it must be signed and dated by either the president or another corporate officer authorized to sign tax returns.
IRS Form 1120-S can be very complicated to fill out depending on the size of the corporation and the nature of the business. It is best to consult with a tax lawyer or licensed accountant before submitting tax documents to the IRS.
Changes that Affect Form 1120-S
Due to changing legislation and different circumstances that affect businesses in the United States, it is always important to check with the IRS website every year to see if any new laws affect how you file your taxes. You may be eligible for tax credits you didn’t even know about.
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S Corporations and Taxes
Once IRS Form 2553 is filed and approved by the IRS, a corporation is classified as an S Corp. S Corporations benefit from pass-through taxation much like an LLC or partnership. They are not required to pay federal income tax at the corporate level like C Corporations. This provides a variety of tax benefits to shareholders and makes S Corps a very desirable business entity.
Shareholders in an S Corp are required to report their percentage of the company’s financial activity on their individual federal income tax return. Each shareholder will then be taxed at their individual tax rate.
Self-Employment Tax
The one tax benefit that attracts many companies to elect S Corp status is that S Corp shareholders are not required to pay self-employment tax except for tax on any salary they earn from the company. Any shareholder who also does work for the company is considered both an owner and an employee. That individual is required to collect a reasonable salary for the work performed, and they will be taxed on that income. However, the shareholder is not required to pay self-employment taxes on dividends from the company. When divided correctly, the shareholder could save a lot of money on taxes.
As of 2018, qualifying Shareholders in an S Corp are also eligible to deduct up to 20% of their net business income from their income taxes. This reduces their effective income tax rate by 20%.
Form 1120-S Frequently Asked Questions
What is ordinary business income on Form 1120-S?
Ordinary business income or loss is the net income or loss for the company. Form 1120-S starts with the company’s total sales and revenues and then subtracts all the business-related expenses. This final number is called the ordinary business income.
How are S Corp distributions reported?
S Corp distributions are reported on for K-1, which is filed with the company’s 1120-S. Schedule K-1 will break down what percentage of the company each shareholder owns. This allows the IRS to determine how to tax each shareholder.
Do S Corp distributions count as income?
S Corp distributions do not count as income and are exempt from taxation. Distributions can include amounts taxed in a prior year, amounts taxed in the current year, and amounts that haven’t been taxed.
What do S Corps do with extra money?
S Corp owners can take money out of the company in various ways. These include wages, distributions, loans, and reimbursement for business expenses.
Can you leave money in an S Corp?
There are no tax implications with leaving money in an S Corp account. This is because S Corps are not taxed at the corporate level. Any money left in an S Corp becomes an asset of the company.
Get Help With Form 1120-S
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Meet some of our Form 1120-S Lawyers
Dean F.
Ferraro Law Firm was founded by Dean C. Ferraro. Dean earned his Bachelor's Degree from California State Polytechnic University, Pomona ("Cal Poly Pomona") in 1992 and his J.D. Degree from the University of Mississippi School of Law ("Ole Miss") in 1996. He is licensed to practice law in the State Courts of Colorado, Tennessee, and California. Dean is also admitted to practice before the United States District Courts of Colorado (District of Colorado), California (Central District), and Tennessee (Eastern District). Shortly after earning his law license and working for a private law firm, Dean joined the District Attorney's office, where he worked for five successful years as one of the leading prosecuting attorneys in the State of Tennessee. After seven years of practicing law in Tennessee, Dean moved back to his birth state and practiced law in California from 2003-2015. In 2015, Dean moved with his family to Colorado, practicing law in beautiful Castle Rock, where he is recognized as a highly-effective attorney, well-versed in many areas of law. Dean's career has entailed practicing multiple areas of law, including civil litigation with a large law firm, prosecuting criminal cases as an Assistant District Attorney, In-House Counsel for Safeco Insurance, and as the founding member of an online law group that helped thousands of people get affordable legal services. Pursuing his passion for helping others, Dean now utilizes his legal and entrepreneurial experience to help his clients in their personal and business lives. Dean is also a bestselling author of two legal thrillers, Murder in Santa Barbara and Murder in Vail. He currently is working on his next legal thriller, The Grove Conspiracy, set to be published in 2023.
Jason P.
Jason is a self-starting, go-getting lawyer who takes a pragmatic approach to helping his clients. He co-founded Fortify Law because he was not satisfied with the traditional approach to providing legal services. He firmly believes that legal costs should be predictable, transparent and value-driven. Jason’s entrepreneurial mindset enables him to better understand his clients’ needs. His first taste of entrepreneurship came from an early age when he helped manage his family’s small free range cattle farm. Every morning, before school, he would deliver hay to a herd of 50 hungry cows. In addition, he was responsible for sweeping "the shop" at his parent's 40-employee HVAC business. Before becoming a lawyer, he clerked at the Lewis & Clark Small Business Legal Clinic where he handled a diverse range of legal issues including establishing new businesses, registering trademarks, and drafting contracts. He also spent time working with the in-house team at adidas® where, among other things, he reviewed and negotiated complex agreements and created training materials for employees. He also previously worked with Meriwether Group, a Portland-based business consulting firm focused on accelerating the growth of disruptive consumer brands and facilitating founder exits. These experiences have enabled Jason to not only understand the unique legal hurdles that can threaten a business, but also help position them for growth. Jason's practice focuses on Business and Intellectual Property Law, including: -Reviewing and negotiating contracts -Resolving internal corporate disputes -Creating employment and HR policies -Registering and protecting intellectual property -Forming new businesses and subsidiaries -Facilitating Business mergers, acquisitions, and exit strategies -Conducting international business transactions In his free time, Jason is an adventure junkie and gear-head. He especially enjoys backpacking, kayaking, and snowboarding. He is also a technology enthusiast, craft beer connoisseur, and avid soccer player.
November 2, 2022
David W.
Founder David W. Weygandt, the Singing Lawyer, is passionate about helping families and businesses stay in tune with what they care about and avoid conflict. When injustice has been done, David is proud to stand up to the modern Goliath and vindicate your rights on your behalf. David lives and practices law in The Woodlands, Texas, and assists clients all across Texas.
November 11, 2022
Nicole P.
Attorney Nicole B. Phillips is a northwestern Iowa native and devotes her practice to the area of Family Law. She is an experienced trial attorney with over 12 years of family law experience. Nicole graduated from The University of South Dakota with a degree in Criminal Justice, and attended Oklahoma City University School of Law to obtain her law degree. Prior to establishing Phillips Law Firm, P.C., Nicole built her first successful law practice in Oklahoma City, Oklahoma, where she focused on Family Law, Estate Planning and Personal Injury Law, and her second successful law practice in Sherman, Texas, focusing primarily on Family Law. Nicole has one daughter, Arabella. In addition to enjoying time with her daughter, Nicole enjoys reading, family dinners, traveling, spending time with friends, and game nights.
November 28, 2022
Ari G.
Ari is a transactional attorney with substantial experience serving clients in regulated industries. He has worked extensively with companies in regulated state cannabis markets on developing governance documents (LLC operating agreements, corporate bylaws, etc...), as well as drafting and negotiating all manner of business and real estate contracts.
January 24, 2023
Jessica F.
I'm a knowledgable and experienced New York licensed attorney with strong contract drafting and negotiation skills, a sophisticated business acumen, and a background working in entertainment and technology law.
December 3, 2022
Evan F.
I am the Founding Member of Evan Ficaj Law Firm PLLC, and I am passionate about helping businesses launch, grow, and succeed. My law firm assists clients with business, contract, entertainment, IP, and estate planning matters.
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